When Time Stands Still

Market Reaction: March 31, 2020


In order to shut down the COVID-19 Novel Coronavirus, many countries will need to temporarily shut down economic activity.

As a result, Citi is forecasting a sharp decline in U.S. gross domestic product in the second quarter of 2020. However, we believe that activity will rebound in the second half of the year.

Actions taken by the Federal Reserve and Congress are aimed at keeping businesses solvent so they can rehire workers once containment measures are lifted.

Economic Impact of COVID-19

For investors, forecasting the economic impact of the COVID-19 Novel Coronavirus is extremely difficult as the broad, purposeful shutdown of economic activity is unprecedented. As such, the dispersion of economic forecasts is extremely wide and represents a great deal of uncertainty. Ultimately, the severity of the economic slowdown will likely depend on the duration of the containment measures that are being taken to combat community spread of the virus.

In terms of the economic impact, Citi’s economists are predicting that U.S. real gross domestic product (GDP) will fall by a -0.5% annualized rate in the first quarter and a sharp -12.0% in the second quarter (released on July 30). The second half of the year may look better with a 7.3% rebound in the third quarter and a 5.6% bounce in the fourth quarter. The unemployment rate will likely rise materially over the next couple of quarters, but should start to decline when activity resumes. It is up to the National Bureau of Economic Research (NBER) to determine whether or not this downturn will be labeled as a U.S. recession, but it seems likely that it will.

Investors should start to see this bare out in economic data over the coming weeks and months. A key metric for investors to watch will be initial jobless claims, which are released on Thursday of each week. These timely data provide investors a picture of how many staff are being furloughed by businesses during the economic standstill. As a general rule of thumb, a 1.5 million increase in claims equals about a 1.0% rise in the unemployment rate. In total, Citi’s economists think the unemployment rate could easily surpass 10.0% with employers shedding 10 – 15 million workers in April. However, with Congress passing a significant $2 trillion fiscal stimulus package, this should help businesses to stay afloat, provide financial assistance to furloughed workers, and provide aid to state and local governments who are facing significant fiscal challenges. Assuming these dramatic actions work as intended and in a timely enough fashion, millions of workers per month could be added back to payrolls once economic activity resumes.

You can stay up-to-date on the latest information, including the types of assistance that we may be able to offer, by visiting www.citi.com/covid19.