Goldman Sachs (GS) has revised its forecasts for the US economy in light of the Covid-19 crisis, predicting first-quarter GDP growth to slump from 0.7 per cent to 0.
The pandemic has wreaked havoc on global financial markets since mid-January, upsetting supply chains, triggering an oil price war and bringing Europe to an effective standstill.
While US president Donald Trump has declared a state of emergency, there have only been 1,629 confirmed cases in the United States thus far. With the novel coronavirus’ peak still weeks, if not months, away, Goldman outlined its belief that the US economy would shrink by 5 per cent in the second quarter of 2020.
Jan Hatzius, the firm’s chief economist, told clients on Sunday, March 15: “We expect US economic activity to contract sharply in the remainder of March and throughout April as virus fears lead consumers and businesses to continue to cut back on spending such as travel, entertainment and restaurant meals.”
In a conference call to 1,500 clients, Goldman outlined that it is working under the expectation that 50 per cent of Americans will be infected, with a mortality rate of 2 per cent and the global GDP growth will slump to its lowest point since 1990.
It also stated that widespread quarantines would result in major economic damage, but recognised their efficacy in slowing the transmission rate and thus easing the burden on the healthcare system.
Hatzius stated: “Even with monetary and fiscal policy turning sharply further toward stimulus… these shutdowns and rising public anxiety about the virus are likely to lead to a sharp deterioration in economic activity in the rest of March and throughout April.”
That same day the Federal Reserve cut interest rates to between 0 and -0.25 per cent for the first time ever and announced a $700bn QE program to go with last week’s injection of $1.5tn.
Despite the ongoing unrest, the firm’s chief economist still maintained that the US economy would grow in 2020, by 0.4 per cent rather than the previous 1.4 per cent.
Hatzius told clients that he expects the world’s largest economy to rebound after the virus peaks, with 3 per cent growth in Q3 and 4 per cent growth in Q4. He did admit however: “The uncertainty around all of these numbers is much greater than normal.”
With its share price down more than 16 per cent this month, Goldman will hope that these numbers are correct, at least for its own sake.