Scenarios for Recovery Shapes and U.S. Interest Rates

PGIM
By May 21, 2020 08:57

Scenarios for Recovery Shapes and U.S. Interest Rates

  •  We believe the shape of a global recovery will largely depend on two non-economic factors—the future trajectory of the virus and the psychology of consumers in terms of when they might feel safe to resume near-normal activity.
  • We place a 40% probability on a U-shaped recovery—a gradual return to pre-virus conditions—that would correspond with real annualized U.S. and global growth of -5-6% and -5%, respectively. We place a 25% probability on a V-shaped recovery—a strong rebound in the late summer and fall—that would correspond with U.S. and global growth of -2% each. We place a 15% probability on an L-shaped recovery—spending and production stagnate at historically low levels—that would correspond with U.S. and global growth of -9% and -7%, respectively. Finally, we place a 20% probability on a Wshaped recovery—another wave of the virus in the fall leads to renewed lockdowns and declining growth—that would correspond to U.S. and global growth of -7% and -8%, respectively.
  • We estimate that China’s economy is operating at about 85% of capacity, which will support a modest V-shaped recovery from a Q1 GDP contraction of 34.7% (based on a seasonally adjusted annualized rate). Our full-year forecast for China’s real GDP stands at -4.0%. However, stimulus efforts in China remain relatively muted, and we don’t anticipate that its recovery will provide as much support for the global economy as it did following the 2008/2009 financial crisis.
PGIM
By May 21, 2020 08:57

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