In the current recession, JPM expects global GDP growth to collapse by the same 9.8%-points in the year through Q2 202 relative to the prior year. Despite the differing nature of the shocks and additional significant hit to the service sector now, JPM still assumes a beta of seven—on par with the global financial crisis. This implies a plunge in corporate profits of roughly 70% in the year through 2Q20.
While earnings will get support from fiscal and monetary policy, that support will come at a cost to tax payers according to JPM. Government debt will surge well over 10%-pts of GDP this year and rise further in 2021. Most policy actions are aimed at supporting aggregate demand, thereby indirectly cushioning private sector income loses. Still, some actions will directly boost profits through tax and credit policies. Nevertheless, despite the huge policy supports, JPM concludes that “the global profit loss will likely still be material” and from the bank’s top-down macro perspective, “global corporate profits look set to crater 72% in the year through 2Q20.”
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
