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It is indeed gross

Wednesday, 29 April, 2020

GDP releases tend to come in three variants, with the first ‘advance’ print having the most impact, a second ‘preliminary’ print and then a final ‘final’ print when all the data has been locked down and officially signed off on. Today, we saw the US advance GDP print for the first quarter of this year. Expectations were wide on how damaging the impact of Covid-19 would be on first quarter growth, ranging from -11% to flat, so the advance print of -4.8% landed somewhere in the middle of the outright pessimists and the more sanguine optimists. 

As an aside, we estimated a drop of 4%, after extrapolating recent PMI and Industrial Production survey data – so, somewhere in the middle of the overall expectation. 

What can be said is that this negative print is likely to be followed by another, larger negative one in the next quarter, as the full effects of the lockdown measures are more widely felt. Technically, the US economy has finally ended its record long expansion since the financial crisis and fallen into a recession. Considering the current economic environment, there is little surprise there. Markets are unlikely to be overwhelmed by this, as most people understood the negative outlook associated with coronavirus, and prices had already adjusted to this reality. What matters now, in our opinion, is the need to see signs of stabilisation in new Covid-19 cases, and even a decline. While we aren’t there yet in the US, we likely aren’t too far from it. Easing of lockdown restrictions would possibly lead to improving activity and a tepid bounce back in growth. The tepidity of this bounce back should be the defining character of what shape we anticipate a recovery to take, whether that be V, U, L or even W-shaped.  

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