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Coronavirus - COVID-19

BlackRock CEO Believes Economy Will ‘Recover Steadily’

Larry Fink says pandemic has sparked re-evaluation of global economy and that ‘the world will be different’ post COVID-19.
By Michael Katz

Despite saying that the economic impact of the coronavirus is unlike anything he’s experienced in his 44 years in finance, BlackRock CEO Larry Fink is cautiously optimistic the economy will have a steady recovery.

“The coronavirus has overtaken our lives and transformed our world, presenting an unprecedented medical, economic, and human challenge,” Fink wrote in a letter to shareholders while in isolation at home. “The implications of the coronavirus outbreak for every nation and for our clients, employees, and shareholders are profound, and they will reverberate for years to come.”

Fink said the pandemic has not only pressured financial markets and near-term growth, but that it has “sparked a re-evaluation of many assumptions about the global economy,” and has caused people to fundamentally rethink the way they work, shop, travel, and gather. “When we exit this crisis,” Fink wrote, “the world will be different. Investors’ psychology will change. Business will change.”

However, Fink said that as dramatic as the financial impact of the virus has been, he believes “the economy will recover steadily, in part because this situation lacks some of the obstacles to recovery of a typical financial crisis.”

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Fink noted that central banks are moving quickly to address problems in the credit markets, while governments are aggressively enacting fiscal stimulus packages to soften the economic blow.

‘The speed and the shape of these policies are deeply influenced by the world’s experience during the global financial crisis in 2008,” Fink said. “I also believe their actions are likely to be more effective and work more quickly since they are not fighting against the same structural challenges as they were a decade ago.”

But Fink cautions that he isn’t suggesting that the markets have reached their bottom, which he said “is impossible to know,” and said there are “significant challenges ahead,” particularly for businesses that are heavily in debt.

Fink added that “if governments are not careful in the design of their stimulus programs, the economic pain from the outbreak will fall disproportionately on the shoulders of the most economically vulnerable individuals.”

Fink also said the pandemic is reinforcing how important technology is for asset managers.

‘The biggest change for asset managers will be how we use technology,” Fink wrote. “In the future, asset managers have to be as good at using technology as anything else they do—and as good at it as any tech firm. It has to be part of who they are.”

He said asset managers will have to fully integrate technology to connect with clients, generate investment insights, create operational efficiencies, and unify their organization on a single platform.

“Volatility of the markets, and the speed with which they have moved these past few weeks, reinforces once again how essential technology is to managing risk today,” Fink wrote. “Our employees are caring for their families and loved ones while also adjusting to remote work and the challenges of isolation. Making this transition successful has depended on careful planning and robust technology.”

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Home > News > Asset Allocation > How Much Will US GDP Shrink This Year? Try 5.4%
Asset Allocation

How Much Will US GDP Shrink This Year? Try 5.4%

That’s the harsh forecast from IHS Markit, one of the grimmest on Wall Street.
By Larry Light

Gross domestic product (GDP) is on the chopping block, no doubt about it. The chilling forecasts for 2020, particularly the second quarter, are tumbling in. Among the direst is IHS Markit’s, calling for a 5.4% shrinkage of GDP this year.

That would mean a steeper decline than even in the last recession, the worst since the Great Depression: Back then the economy went down a fraction in 2008 because the financial crisis started near year-end, but the worst of it was negative 2.5% in 2009.

In other words, the research group thinks the 2020 economic fall, brought on by the coronavirus, will be twice as awful as the peak of the Great Recession.

And it will only get worse, wrote IHS’s chief economist, Nariman Behravesh, in a research note. “The risks remain overwhelmingly on the downside and further downgrades are almost assured,” he warned.

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A plunge of 5.4% would make the US the worst performer among major economies, by the firm’s reckoning. The next worst is a tie between the eurozone and Brazil, both looking at a 4.5% drop.

Well, at minimum, things aren’t as grim as in the early 1930s. In those days, GDP shriveled 8.5% in 1930, 6.4% in 1931, and peaked at 12.9% in 1932.

Lately, across Wall Street, economists are forecasting bad, bad, bad. They just differ by degree. Goldman Sachs believes in a darkness-to-light scenario involving a harrowing first half (with the economy down by 6.1% in the first quarter and a whopping 24% in the second) followed by a rebound in the second half (12% and 10% for its two quarters), for a 2020 overall slide of 3.1%.

According to a note from Jan Hatzius, the firm’s chief economist, their forecast is built on, among other things, a projected “85% decline in sports and entertainment spending, a 75% decline in transportation spending, and a 65% decline in hotel and restaurant spending.”

Meanwhile, Deloitte’s Daniel Bachman sees a 2020 slide of 2.3%. Raymond James’ Scott Brown thinks the second quarter can fall as much as 15%, while Oxford Economics USA’s Gregory Daco is going for 12%.

The Conference Board has three outlooks for the entire year with the nastiest results hinging on how long the virus sticks around: “In the ‘May reboot’ scenario, GDP growth will shrink by 1.6% in 2020 (over 2019). In the ‘summertime V-shape’ and ‘fall recovery’ scenarios, the contraction will be much stronger (5.5% and 6%, respectively). Businesses should prepare for those worst-case scenarios, which have high probability.”

A slow build-back seems to have the most votes among Wall Street economists. As IHS wrote, “It will likely take two to three years for most economies to return to their pre-pandemic levels of output.”

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