- Spiking COVID-19 cases and slowing economic activity have led Goldman Sachs to cut its near-term growth forecasts.
- Economists led by Jan Hatzius predicted that US gross domestic product would grow by 3.5% in the fourth quarter, down from a forecast of 4.5%. The bank also lowered its first-quarter 2021 growth estimate to 1% from 3.5%.
- But the winter drag should give way to a bigger rebound on the back of vaccine distribution, the bank said. The forecast for second-quarter growth was revised to 9.5% from 7%, and the third-quarter growth forecast was lifted to 7% from 6%.
- Goldman also expects the Federal Reserve to extend the average maturity of its asset purchases in December to further support the economic recovery.
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Goldman Sachs cut its US growth forecasts for the next two quarters, pegging the gloomier outlook on the “rapid and broad-based resurgence of the coronavirus.”
The bank on Monday lowered its forecast for fourth-quarter gross domestic product growth to 3.5% from 4.5%. It predicted that growth in the first quarter of 2021 would slow to 1%, down from an estimate of 3.5%.
Another wave of infections and new lockdown measures have cut into an already weakening economic recovery, economists led by Jan Hatzius said in a note to clients. Data from virus-sensitive sectors show “clear signs of a growing hit,” the team said.
The US sits squarely in its worst phase of the coronavirus pandemic yet. New cases totaled 150,098 on Sunday, bringing the seven-day average to 167,658, according to the COVID Tracking Project. Total deaths neared 250,000, and the number of Americans currently hospitalized with COVID-19 hit 83,782.
“The public health and economic situation is likely to get worse before it gets better, in our view,” Goldman said, adding that various high-frequency indicators of consumer activity showed an economic slowdown coinciding with “the national deterioration in public health.”
But the bank expects the period of weakness to give way to stronger-than-expected growth over the next two years. A bigger economic hit in the winter “should imply an even larger reacceleration on the back of mass immunization,” the economists said.
The chance that a vaccine will be widely distributed in early 2021 continues to increase. AstraZeneca and the University of Oxford announced Monday that their candidate was found to be an average of 70% effective at preventing COVID-19 in patients in a trial. Moderna and the team of Pfizer and BioNTech have also announced encouraging data from late-stage trials of their vaccines.
Hope for near-term vaccine approval led Goldman to lift its mid-2021 projections. Its forecast for second-quarter growth improved to 9.5% from 7%, and third-quarter GDP is expected to grow by 7%, up from a 6% estimate, the bank said.
The virus and stimulus talks present the two biggest near-term risks to the bank’s outlook. Failure to enact new fiscal support in early 2021 or the implementation of stricter lockdown measures could force the economy into a first-quarter contraction, the team said.
Goldman also adjusted its forecast for the Federal Open Market Committee meeting on December 15 and 16. Central-bank policymakers were already expected to keep interest rates near zero and maintain their pace of asset purchases. But Goldman’s economists see weaker winter conditions as a big enough threat for the bank to extend the maturity of its asset purchases. Buying longer-dated Treasuries places greater pressure on long-term interest rates and, in turn, stimulates demand for interest-sensitive goods.
With economic activity worsening through the end of 2020, Fed officials are expected to extend the maturity of their asset purchases and introduce a timeline for the purchase program, Goldman said.
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