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The Effect of COVID-19 on CRE Property Sectors

With millions of Americans subject to stay at home orders and various other social distancing measures, widespread business closures, and restrictions on social interactions, the economic damage from COVID-19 is expected to be significant. While uncertainty remains, it is generally expected that the U.S. economy will face challenges in the near term.

With millions of Americans filing for unemployment over the past several weeks, many economists believe that the United States economy has already fallen into a recession from the shock of the coronavirus pandemic. JPMorgan updated its estimates on April 9th. JPMorgan expects GDP to decline by 40% in Q2 2020,and they are projecting April’s unemployment rate will reach 20%(1). Additionally, Morgan Stanley lowered its Q2 2020 GDP forecast to –38% from –30%. On an annual average basis, Morgan Stanley expects real GDP to contract 5.5% in 2020, which is the largest annual drop in growth since 1946(2).

In March, President Donald Trump signed the CARES Act, the largest expansionary fiscal stimulus package ever enacted by the United States Government. The $2.1 trillion package aims to inject liquidity and provide aid to industries affected by the coronavirus. The act addresses both small and large businesses, as well as individuals and government agencies. Between the CARES Act and stimulus measures enacted by the Federal Reserve, the U.S. Government has the potential to provide $6 billion in funding, which equals nearly 30% of 2019 U.S. GDP. The stimulus measures are intended to potentially mitigate some of the negative economic impact of the coronavirus(3).

1) CNBC. “JPMorgan now sees economy contracting by 40% in second quarter, and unemployment reaching 20%” April 2020
2) MarketWatch. “Morgan Stanley forecasts 38% drop in second-quarter U.S. GDP.” April 2020
3) Investopedia. “The Top 20 Economies in the World.” March 2020