Morgan Stanley: 'No need' to lower GDP forecasts on Delta variant risks

·2 min read

The surge in COVID-19 cases from the Delta variant is not yet substantial enough to darken the U.S. economic outlook, said Morgan Stanley’s top U.S. economist.

“I feel no need to take down GDP growth forecasts on the risks around the Delta variant,” Ellen Zentner told Yahoo Finance on Wednesday. “I think we’ve done a good job of self-policing all through COVID and that means it can dampen some of the effects.”

On Monday, rising case counts rattled equity markets as the major stock indexes logged their worst declines since May. The fear: that the reinstatement of mask mandates in some corners of the country could foreshadow the return of lockdowns if the spread gets worse.

Markets largely reversed those losses on Tuesday.

Zentner said Morgan Stanley is still sticking with its economic forecast for second quarter GDP growth of 11.6% on an annualized basis, with that pace slowing to an average of 7.5% in the second half of this year.

“That doesn't mean all of that can’t bobble,” Zenter said. “But it’s disingenuous of an economist to sit here today and say, ‘I know what kind of effect this variant could have on the U.S. at some future date.’”

Delta variant risks

The seven-day moving average for COVID cases tilted above 35,000 per day on Monday. That increase in cases is showing no signs of slowing as the Centers for Disease Control and Prevention estimates that 83% of U.S. cases are linked to the more contagious Delta variant.

JPMorgan’s Jesse Edgerton wrote Wednesday that the United Kingdom’s experience with Delta suggests a “rapid rise in cases” should be expected stateside.

But vaccinations should dampen the increase in deaths. The seven-day moving average for COVID deaths was 245 per day, an increase but only slightly so from the early July lows of 159 per day.

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Capital Economics wrote Tuesday that it would be unlikely for states to reinstate lockdowns, meaning that the focus turns to how consumers will choose to hunker down themselves.

“[T]he upturn in infections still poses a downside risk to the economy over the coming months if it prompts people to voluntarily stay away from in-person services,” said Capital Economics Chief North America economist Paul Ashworth.

At JPMorgan, Edgerton wrote that a new wave of cases will not spell doom for economic activity, noting that the winter wave in COVID saw only a “relatively modest pullback” in travel and entertainment spending.

“On the other hand, with spending levels closer to normal at this point, a new wave might produce a larger dip,” Edgerton cautioned.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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