Macro: COVID-19 US Economic Update Part 3: Taking a closer look at the Corona-Recession

In the US the spread of COVID-19 has accelerated dramatically and economic restrictions have been extended until the end of April for the time being. The economic consequences of the health crisis are particularly noticeable in the labor market. In light of recent developments that illustrate the pronounced extent of the crisis, we are adjusting our economic outlook. The projected GDP growth for 2020 has been lowered from -2.7% to -5.3%, while increasing the projection for 2021 from 3.3% to 5.3%. We now expect a significantly more pronounced decrease in economic activity during the first half of the year, which is predominantly driven by a historic decline in private consumption. Due to a gradual easing of containment measures, a rebound will follow during the second half of the year, yet the level of economic output before COVID-19 will not be reached until 2022. Despite the significant downward revision, the economic outlook remains subject to downside risks. In a negative scenario, we assess the effects of a significantly longer normalisation period, such that an economic recovery will not set in until 2021. The long duration of the slump will lead to more pronounced second-round effects, which weigh on demand and slow the recovery. In this scenario, GDP growth would fall to -8.0 % in 2020 and would only rise to 3.0 % in 2021.

This Research was produced and first published by Raiffeisen Bank International AG which is supervised by the Austrian Financial Market Authority and the National Bank of Austria.