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Economist Ed Hyman: Virus Will Kill Growth, Spark Recession

illustration of dollar sign, down arrow and economy. recession conceptual image for money down the drain.
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By    |   Monday, 02 March 2020 09:22 AM

A widely followed economist on Wall Street said the coronavirus outbreak could end up causing a recession in the U.S. and slashed his U.S. GDP forecast to zero growth in the second and third quarters of this year.

“More cases are showing up in the U.S. and seem likely to be just the start,” Evercore ISI Chairman Ed Hyman said in a note titled, “U.S. Virus ‘Recession,” CNBC reported.

“Scope, severity, and duration are uncertain. How much it changes behavior in the U.S. is uncertain,” he warned. “All this is quite uncertain, and we may be overreacting,” Hyman said. “But we also don’t want to underreact. In any event, all this creates more uncertainty for election outlooks.”

A fall in GDP in two consecutive quarters typically defines a recession. The U.S. economy grew 2.1% in the fourth quarter last year and 2.3% for the full year 2019.

Hyman expects GDP to rebound to 2% in the fourth quarter and 3% in 2021, assuming the virus starts to clear.

The U.S. economy is likely growing at a 2.7% annualized rate in the first quarter, based on the latest economic data, the Atlanta Federal Reserve’s GDPNow forecast model showed on Monday. That compared to a 2.6% pace estimated by the Atlanta Fed’s GDP program issued late last week.

Meanwhile, the New York Fed is less optimistic but raised its forecast Q1 by 0.1 percentage point. The New York Fed Staff Nowcast stands at 2.1% for the first quarter. "Positive surprises from manufacturing and housing data accounted for most of the increase," the New York Fed said.

U.S. stock indexes rose sharply on Monday, prompted by bargain hunting and on reassurances by central banks that they stood ready to counter any economic impact from the coronavirus.

Wall Street had marked its biggest weekly decline since the 2008 financial crisis, sinking into correction territory on Thursday amid fears of a recession resulting from the epidemic.

"The selloff was so fierce last week that you do have some buy-the-dip investors emerging," Brent Schutte, chief investment strategist, Northwestern Mutual Wealth Management Company, told Reuters.

Wall Street's drop, coupled with data showing Chinese factory activity contracting at its worst pace ever in February, led Federal Reserve Chair Jerome Powell to say the central bank would act as required to provide support.

Elsewhere, Heritage Foundation economist Stephen Moore is urging Americans to not be “freaked out and panicked” over stock market losses triggered by the coronavirus outbreak.

In an interview with radio host John Catsimatidis, Moore, a White House ally, said the economy will spring back once authorities determine a treatment for the fast-spreading virus, The Hill reported ahead of the Sunday interview airing.

“People should not be freaked out and panicked,” he said, adding: “People oftentimes make the mistake of … following the herd, and sometimes they follow the herd right over the cliff,” Moore said. “As soon as these viruses hit, the stock market falls by five or 10 or 12 percent, just as has happened now,” he said. “Once we have [a cure] … then the market goes right back up on its merry way.”

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Economy
A widely followed economist on Wall Street said the coronavirus outbreak could end up causing a recession in the U.S. and slashed his U.S. GDP forecast to zero growth in the second and third quarters of this year.
economist, zero, growth, gdp
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2020-22-02
Monday, 02 March 2020 09:22 AM
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