Roaring Into Recession

Exchanges

Goldman Sachs

Business

4.4 • 1K Ratings

🗓️ 26 March 2020

⏱️ 24 minutes

🔗️ Recording | iTunes | RSS

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Summary

Coronavirus has pushed the global economy into a recession of historic proportions and halted the longest-lasting equity bull market on record. As infections spread globally, economic activity collapses, markets recoil and policymakers respond, the depth and duration of the economic and market downturn is Top of Mind. In this episode, Allison Nathan speaks with the former Chair of the Council of Economic Advisers, Jason Furman, and Goldman Sachs’ Chief Economist, Jan Hatzius. Both agree that the near-term economic damage will be severe, but whether it proves longer-lasting will depend largely on the virus’ trajectory and somewhat on policymakers, who have done a lot, but may need to do more to sustain households, businesses and market functioning in this difficult period. To that end, we assess the risk that the global health crisis becomes a financial crisis. And we discuss how this might play out in markets, and what investors should do from here. For that, we draw on the wisdom of Oaktree Co-Chairman, Howard Marks. His advice? Buy things with solid fundamentals when they go on sale. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	From Goldman Sachs research, this is Allison Nathan.
0:03.0	Welcome to Top of Mind, a podcast that explores macroeconomic issues on the minds of our clients.
0:18.1	In this episode, we're taking a look at the ongoing economic and market implications of the coronavirus outbreak,
0:25.0	which has now pushed the global economy into a recession of historic proportions and abruptly halted the longest equity bull market in history.
0:34.4	As infection spread globally, economic activity collapses, markets recoil and policymakers
0:40.2	snap into action, the depth and duration of the economic and market downturn is top of mind.
0:47.3	I first asked our head of global investment research and chief economist Jan Hotsius about the severity
0:52.8	of the downturn, how long it might last,
0:55.3	and what the recovery might look like.
0:57.7	Jan, how severe of a global recession are we expecting at this point?
1:01.4	I think it's going to be a pretty severe recession.
1:03.7	For 2020, our forecast for global GDP right now is about minus 1.2%, which would be about a percentage point below
1:15.9	what you saw in the year following the global financial crisis 2009. That's one measure of
1:22.2	the severity. If you look at higher frequency measures, you get even more severe numbers. The first quarter
1:29.8	in China, for example, by our estimates, saw a 42% quarter-on-quarter annualized contraction.
1:37.4	And for the second quarter in the U.S. or the euro area, we're looking for numbers in the
1:43.9	20 to 40% range.
1:45.9	Again, these are quarter and quarter annualized numbers, so you can get some pretty large
1:50.9	numbers because you're effectively multiplying the sequential change by four.
1:56.0	It's a very severe downturn in the short term.
1:59.7	The reason why it's so severe is that it's basically a sudden
2:02.2	stop in economic activity that's driven not by financial factors like most recessions in the
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