Goldman Sachs slashes US growth forecasts as spiking coronavirus cases drive economic slowdown
- 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.
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.