U.S., eurozone output to crash in Q2 2020 – Fitch

PARIS, France – The United States and eurozone economies will see massive contractions this quarter of up to 30% on an annualized basis and a recovery to pre-coronavirus crisis levels will not come before the end of 2021, ratings agency Fitch said on Thursday, April 2.

It said the lockdowns now in place in Europe and much of the US to slow the spread of the novel coronavirus are causing severe drops in economic activity.

"We now judge that lockdowns could reduce GDP (gross domestic product) across the EU and US by 7% to 8%, or 28% to 30% annualized" in April through June, Fitch said in a statement.

GDP is a measure of all economic output in a country.

"This is an unprecedented peacetime one-quarter fall in GDP and is similar to what we now estimate occurred in China" in the first 3 months of this year when it imposed confinement measures on its citizens and most production was shut down.

Fitch said that if the health crisis eases in the second half of the year, a marked rebound could be expected with the lifting of lockdowns leading to a jump in activity. 

Government stimulus measures could also help boost growth. 

"But the scale of the dislocation means that even assuming that the health crisis subsides we do not envisage GDP returning to pre-virus levels until late 2021," said Fitch.

That is because struggling businesses will slash investment, the drop in equity prices will crimp investors, and widespread unemployment will dampen consumer spending.

Fitch said it expects US unemployment to peak at 10% this quarter with 10 million job losses.

The ratings agency's updated forecast came as the US Labor Department said that a record 6.65 million workers filed first-time claims last week, double the 3.3 million the previous week. – Rappler.com