US economy expected to contract in 1Q

  • Economy
  • Monday, 27 Apr 2020

AMONG the key data this week, the US Bureau of Economic Analysis will release its advance estimate of the US gross domestic product (GDP) for the first three months of 2020 on Wednesday.

Investors are on tenterhooks over the state of the world’s largest economy, with pundits widely expecting a contraction in the first quarter. The median result of a survey of Bloomberg analysts suggests a 3.7% contraction in GDP over the previous quarter.

This is in sharp contrast to a GDP growth of 2.1% in the fourth quarter of last year.

In an April 3 report, Morgan Stanley lowered its forecast on US’ first quarter GDP to -3.4%, which serves as a prelude to a grim forecast for the second quarter of the year, when GDP is expected to shrink 38%.

Also on Wednesday, the US central bank will announce its monetary decision following a two-day Federal Open Monetary Committee meeting as it continues to look at new ways to prop up the economy in these unprecedented times.

CME Group’s FedWatch Tool, a barometer of market expectations on potential changes to the federal funds target rate, currently has a 100% probability that the rate will be maintained at 0%-0.25%. Bloomberg’s survey of analysts forecasts a similar result.

On Thursday, the US’ weekly jobless claims announcement will continue to draw attention as the number of new registrations remain highly elevated.

“Over the past five weeks, US recorded 26.45 million jobless claims, exceeding the 22.442 million jobs created from November 2009 till February 2020. We expect five million claims (from the 4.4 million claims reported on April 23), ” said UOB Global Economics and Markets Research in a report last Friday.

A raft of US corporate earnings are also scheduled for release this week as the season comes into full swing. Some notable companies include Alphabet, Novartis, Pfizer, Pepsico, HSBC Holdings, Starbucks, 3M Company, BP, Advanced Micro Devices, Caterpillar, Microsoft, Facebook, Tesla, Qualcomm, Boeing, CME Group, General Electric Company, Petrobras Brasileiro, Ebay, Spotify Technology, Total SA, ConocoPhilips, Exxon Mobil and Chevron.

Mild growth seen for Taiwan

The key highlight in Asia would be Taiwan’s 1Q20 GDP, which faces uncertainty owing to the pandemic affecting the economy.

“We currently expect GDP to grow by +0.9% y/y in 1Q20, but the economy may still see contractions in the second and third quarter of 2020 by -2.0% y/y and -0.8% y/y respectively, followed by +2.5% rebound in 4Q20.

“For the full-year, Taiwan economy may post a small positive growth of 0.2% which would still be the lowest since 1.6% contraction in 2009, ” said UOB Global Economics and Markets.

Chinese factory output

China’s manufacturing purchasing managers’ index (PMI) for April is scheduled for release on Thursday, with expectations that it will slip slightly after rebounding in March.

According to UOB Global Economics and Markets, China’s manufacturing PMI is expected to edge lower to 51.0 from 52.0 in March while the non-manufacturing PMI is also expected to be lower at 50.5 from 52.3 in March.

The improvement in the March data, which beat market expectations, reflected the country’s efforts to mitigate the negative impact of the coronavirus pandemic, said the National Bureau of Statistics (NBS), which conducts the survey.

However, it remains to be seen if production returns to pre-outbreak levels. The NBS had cautioned in March that an upturn in the economy would only be confirmed by the PMI rising for three consecutive months.

Other releases

Bank of Japan will hold its monetary policy meeting today while Japan’s March retail sales and preliminary figures for March industrial output are scheduled for release on Thursday.

In South Korea, March industrial production data will be released on Wednesday while April trade figures will be announced on Friday.

Over in Europe, the European Central Bank will convene on Thursday, the same day the preliminary estimate of the eurozone Q1 GDP is released.

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