Goldman Sachs just decreased its growth prospects for the economy big time.
Jan Hatzius, Goldman’s chief economist now says there’s a 33% chance of a recession in the next 6-9 months.
He’s also now calling for 2% growth instead of 3% growth.
He just said on CNBC:
“The Fed is probably going to respond with at least some small steps. The chances are now 1 in 3 that we will slide back into recession.”
The one bit of good news: He doesn’t expect the Eurozone as a whole to go into recession.
If it were to, he says, then of course there would be significant spill over effects on the U.S. economy.
Here’s what he wrote in a recent report, via Reuters:
We have lowered our forecast for US real GDP growth further and now expect real GDP to grow just 2%-2½% through the end of 2012. Our forecast for annual average GDP growth has fallen to 1.7% in 2011 (from 1.8%) and to 2.1% in 2012 (from 3.0%). Since this pace is slightly below the US economy’s potential, we now expect the unemployment rate to be at 9¼% by the end of 2012, slightly above the current level.
2. Even our new forecast is subject to meaningful downside risk. We now see a one-in-three risk of renewed recession, mostly concentrated in the next 6-9 months. There are three specific issues that concern us. First, a worsening of the European financial crisis, and a failure of European policymakers to respond adequately, could lead to a further tightening of financial conditions and credit availability, which would worsen the economic outlook globally. Second, our forecast assumes that the payroll tax cut—currently scheduled to expire at the end of 2011—is extended for another year, but if that failed to happen the fiscal drag in early 2012 would increase significantly. Third, increases in the US unemployment rate have historically had a tendency to feed on themselves, and this could happen again.