US: Economic shutdown appears to have resulted in a catastrophic 35.9% annualized drop in Q2 – CIBC

Next Thursday, the advance estimate of Q2 real GDP is due in the US. Analysts at CIBC point out the GDP report won't have a significant impact on markets, as the focus remains in the pandemic and geopolitical tensions. They forecast a -35.9% contraction. 

Key Quotes: 

"The economic shutdown appears to have resulted in a catastrophic 35.9% annualized drop in US GDP in the second quarter. The largest component of the economy, consumption, will have been the main contributor to the drop, compounding sharp declines in business investment, exports, and residential investment.”

"Although activity picked up in May and June as states started to reopen and hiring resumed, it clearly hasn’t bounced back as quickly as it shutdown, as consumers became especially cautious towards the latter part of June as virus cases surged. Moreover, some industries will need social distancing to remain in place until a vaccine is available.”

"Even with the tightening of social distancing restrictions in July along with the resurgence of the virus, the third quarter should see growth, owing to a solid handoff from June. However, monthly readings in July and August will likely reveal that the recovery stalled.”

"Markets are already expecting a dismal GDP report and will likely remain more concerned with the climb in virus case counts and geopolitical tensions.”