Growth Expectations

In Gormsen and Koijen (2020), we use dividend futures to estimate the expected GDP growth following the corona outbreak. Next years growth has been revised by (relative to estimate on January 1, 2020)

Dividends: -9 percentage points
GDP: -2 pp

Dividends: -14 pp
GDP: -3.1 pp

as of June 8. We emphasize that these estimates are based on a forecasting model and the historical relation between growth and asset prices, which could have changed. The forecast comes with uncertainty.

We also provide a lower bound on revisions in expected dividends at different horizons. The lower bound is model free and forward looking. As of March 18, the expected dividends have been revised down by as much as 43% for S&P 500 and 50% for Euro Stoxx 50. We emphasize that these are lower bounds, and that actual expectations may have been revised down by less. The lower bound is higher on longer horizons.