U.S. gross domestic product growth, according to an investment bank, will slow down through the end of 2020 as fiscal aid appears unlikely to materialize.
A team of economists from Morgan Stanley on Sunday, September 28, has downgraded its U.S. economic growth forecast form the previous 9.3%. The drop, according to the analysts, was massively influenced by the “diminishing fiscal support.”
US economic growth to slow down in Q4
Per the investment bank’s latest forecast, reported by Business Insider, U.S. economic growth for the fourth quarter this year is down to 3.5%. The economists previously predicted a 9.3% growth, which is also the highest rate among other banks recorded by Bloomberg.
The drop is also among the recent expectations downgraded per other banks.
The Bank of America (BoA), for example, has dropped its fourth-quarter forecast from 5% to 3%. Goldman Sachs, on the one hand, had slashed its expectations to 3% last week, while JPMorgan downgraded it from 3.5% to 2.5%.
On a separate report, the bank predicts U.S. gross domestic product growth for 2020 to hit -3.6% from the previous -3.4%. The bank also noted the segment to return to its pre-pandemic size by the middle of 2021.
Effects of stimulus package
Morgan Stanley’s economists explained the change reflects the status of a second stimulus aid, which they said is “unlikely to be delivered this year.”
The bank mentioned about the upcoming elections as well, citing that a divided U.S. government after the election is equal to “more fiscal gridlock,” while a unified government could result in fiscal aid expansion.
A potential monetary aid before the end of 2020, however, is possible if there is a “clear weakening of markets.” An economic outlook that could push Congress could make a second stimulus package possible too.
Bullard: “recovery is possible this year”
On the flip side, the president of St. Louis Fed said last week that the U.S. economy is near to full recovery specifically by the end of the year.
Based on an article published by the MarketWatch, economists see a speedy recovery for the U.S. in the coming third quarter (July-September) after it drops sharply between the first and second quarters.
James Bullard of the Fed also said that the U.S. could return to its pre-pandemic level of national income if the rally continues strong through the fourth quarter.
“What I’m kind of pushing gently back against in the forecasting community and maybe showing my colleagues, is that the baseline case is really that the private sector is adapting,” Bullard explained.