Q1 GDP was revised downward in the second estimate by 0.2% to show 5% contraction vs. the originally reported decline of 4.8%. Q1 2020 marks the largest quarterly decline since Q4 2008 dropped 8.4% during the height of the Great Recession. Q1 was dragged down by the coronavirus pandemic which only began to have an impact in the last two weeks of the quarter, meaning Q2 figures are likely to be far worse – many economists are predicting the worst GDP drop in US history, with estimates of up to 40% contraction.
Key Takeaways
- Q1 GDP was revised downward from 4.8% contraction to 5% contraction.
- Q1 just barely covered the start of the coronavirus pandemic, and Q2 GDP is likely to be significantly lower, possibly up to 40% contraction.
- The downward revision in Q1 was due to weaker business investment than initially reported, slightly offset by stronger consumer spending.
A formerly flourishing economy has been brought down by the global coronavirus pandemic, Q1 giving just a hint of the economic fallout coming in the following quarter. Tens of millions of workers have been laid off and major portions of the economy have been shutdown in unprecedented pandemic containment procedures, and the impact on the economy is increasingly serious.
Q1 GDP levels in the COVID-19 shock:
1. The US (black) is 21% above Q1 '08 level
2. Germany (blue) is 11% higher than Q1 '08
3. Spain (pink) back down to Q1 '08 level: lost decade
4. Italy (red) 10% below Q1 '08 & back to Q1 '00 level
5. COVID exacerbates weak initial conditions pic.twitter.com/0jn0jRmWy6— Robin Brooks (@RobinBrooksIIF) May 28, 2020
However, while Q2 is forecast to be the worst GDP drop in history since records began in 1947, many economists are anticipating a sharp rebound in Q3, with the Congressional Budget Office even predicting a rise of 21.5% at that time. The current crisis is atypical in that a partial recovery may be much shorter than that of previous recessions. Most people currently out of employment are furloughed and will likely be able to return to their job once lockdown ends, and some states are already significantly loosening containment procedures.
Despite the budding optimism around Q3 and Q4 performance, the path to a full economic recovery may be a long one yet. Any success is predicated on the success of the current reopening efforts, which are controversial and deemed too early by some healthcare experts. The result could be a second wave of coronavirus, leading to more casualties and harsher lockdown procedures yet again.
Market Reaction
Gold prices have seen strong upward momentum in today’s session. Spot gold last traded at $1,726.07/oz, up 0.96% with a high of $1,726.80 and a low of $1,707.82/oz. The upward momentum came after the release of reports that durable goods orders fell over 17% in April and initial jobless claims rose by another 2.12 million claims.
Gold Price Chart
More articles from Conor Maloney
