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Executive summary

Our economy is facing unprecedented challenges as we navigate the COVID-19 pandemic. The economy most likely entered a recession in March 2020 with the largest economic decline in modern history. Policymakers acted fast, delivering sizable fiscal and monetary stimulus that will help mitigate some of the economic decline. Financial markets also experienced exceptional volatility and dislocation. As the scope of the economic slowdown becomes clearer over the next quarter, valuations could see further volatility and downside, which is typical during the early stage of recessions.

Into the unknown
Writing an outlook at a time of so much uncertainty due to the COVID-19 pandemic is difficult, to say the least. For many economists working with a traditional GDP model, the assumptions going in are as much of a guess – educated though it may be – as the final numbers of the forecast. The economy most likely shrank in Q1, with prospects for Q2 shaping up to be a devastating dislocation in economic activity, employment and output. March 2020 will likely mark the end of our record-long expansion.

Having experienced many economic and credit cycles, I have learned three critical lessons. First, each cycle is unique – in catalysts, vulnerabilities and challenges. After each cycle, we work to remedy vulnerabilities and put a framework in place to address reoccurrence. History can be immensely helpful but is not a blueprint for the future.

The second lesson is that over the long run, our $20 trillion economy remains vast, dynamic and broadly resilient. The benefit of a wider vision shows us that we do recover; we find normal again. It will likely be a different normal. Events like 9/11 or the OPEC oil embargo of the 1970s have a lasting imprint on our culture. But our economy does heal from downturns and eventually comes out strong on the other side.

The third lesson is that while the downturn – both financial and economic – is happening, it can be very scary indeed. Now even more so because the real problem is a health crisis, not a downturn born of economic excesses or financial sector folly. It is hard to wrap our minds around the fact that the dislocation – economic and social – could last for longer than we initially anticipated. Our next normal may well look different from the last decade.

For these reasons, our Q2 outlook will focus less on trying to estimate dollars and cents of lost activity or the percentage impact on GDP. Current estimates of Q2 GDP range from a 15% contraction to a 33% contraction. Either way, it will likely be devastating to the economy and investors. At the March 15 FOMC meeting, the Federal Reserve did not release economic projections, and Fed Chair Powell noted that given how rapidly events are unfolding, a forecast is “just not something that’s knowable” and that “writing down a forecast … didn’t seem to be useful.”

Instead, we present a series of articles to offer guidance to investors, context from prior economic cycles, and details of policy solutions and expected impact.

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