Historic Fall In US GDP As Banks Cut Growth Forecasts

Figures released by the US Bureau of Economic Analysis have shown the US economy contracted at an annualised rate of -31.4% over Q2 2020. This was better than the market expectation of -31.7%, but also represents the fastest level of US economic decline in history.

On a quarterly basis, the contraction was a less severe -2.1% with analysts now expecting a recovery over Q3 as national restrictions ease. The US dollar lost some of its recent strength following the news, however traders remain wary as global Covid-19 cases continue to rise.

The latest readings come against a backdrop of a reduction in 2020 growth forecasts from some of Americas biggest investment banks. JP Morgan, Bank of America and Goldman Sachs all cut their US GDP predictions by up to half in recent weeks, whilst Morgan Stanley slashed its fourth quarter projections from 9.3% to 3.5%.

Along with the ongoing impact of Covid-19, there is widespread concern amongst banks that the upcoming presidential election could create a divided government – making it harder to pass new economic policies and creating a “fiscal gridlock”.

Earlier today the UK also posted a slightly better than expected Q2 GDP reading of -19.8%, its biggest fall on record and the second steepest decline of a G7 economy. Renewed restrictions have dented hopes of a “V-Shape” recovery over 2020 and is also leading businesses to reduce their levels of investment.