The economic impact according to a major investment bank’s private briefing

31 March 2020

I participated in a call this evening with a major investment bank, where two well-known economists and a tax policy expert discussed the economic impact on the US and the US fiscal and policy response.  As with many such discussions, it was on a not-for-attribution basis.

I won’t summarise the entire call, as much of the discussion covered areas that are well covered elsewhere; instead, I’ll focus on a few interesting takeaways.

The big headlines for me are as follows:

  • The impact on the economy will be enormous in the near-term, with estimates increasing significantly since those from even one week ago.
  • The US’s fiscal and policy response is quick, large, and appropriate; it will help blunt the impact.
  • While the US will take on a lot more debt to pay for the response, it is not at a level that puts the US in danger.
  • There should be strong growth in 2021 against the weaker comparison year of 2020, and reasonably strong growth in 2022 as well.


  • The US$2.3 trillion CARES Act phase three passed last week was the third phase of the COVID-19 crisis relief response
  • It includes $1.4B of direct fiscal stimulus and $850M in loans and guarantees
  • The CARES Act dwarfs the 2009 American Recovery and Reinvestment Act ($800B) and the 2008 TARP ($800B).
  • The largest components are loans and loan guarantees for large business as well as state & local governments; small business loans & grants; one-time checks and unemployment benefits; lowering business taxes; increasing health-related spending.
  • The expenditures are front-loaded in 2020.
  • The experts on the call consider the bill both well targeted, and directed to impacted businesses.
  • While the measures will not change the near-term growth outlook, they should reduce the medium-term impact to business and employees
  • Despite the large deficits that will result, “we do not believe that It will  jeopardize the safe haven and reserve currency status of US assets.”

Economic impact

  • Q2 will see a sharp decline in GDP: on an annualised basis Q2, will be down more than 30%, even worse than the prior forecast of a 24% decline.
  • US GDP will decline 6.2% in real terms 2020, vs 2.3% growth in 2019.
  • Growth will resume in 2021 with a strong “catch-up” element and tailwinds from the fiscal stimulus, with growth of 5.5% in 2021 and 3.5% in 2022.
  • At the point of peak economic impact, the net impact of COVID-19 is more than 6% of GDP.  
    • By far the largest impact is from Hotels, Food Service, and Car Rentals, which makes up 4.7% of GDP and will decline 75%.
    • Certain other parts of the economy will decline 90%, but are relatively small components of GDP: Casino Gambling, Sports & Entertainment, and Package Tours & Theme Parks.  (Collectively 1.8% of GDP.)
    • On the other hand, expenditure on Hospitals / Outpatient Care, which is 10.6% of GDP, will increase 15%.
  • The sharp hit to the economy in February / March / April will begin to reduce over the rest of 2020 and 2021.  The following chart shows the projected net cumulative impact, relative to a baseline assumption of 1.75% growth otherwise.

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