Goldman Sachs cuts US GDP estimate, now sees economy shrinking 4.6% in 2020

• Goldman Sachs economists on Saturday lowered their third-quarter US GDP growth forecast to 25% from 33%, citing weak consumer services spending and the strong uptick in national coronavirus cases.
• The reimplementation of lockdown measures and social-distancing guidelines in states including California, Florida, and Texas are "already having a noticeable impact on economic activity," the team led by Jan Hatzius wrote in a note.
• The firm lowered its full-year projection to a 4.6% contraction from a 4.2% contraction.
• Still, offset spending and reopening benefits led Goldman to boost its first-quarter growth forecast to 8% from 6.5%.

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States' revived restrictions and continued stay-at-home activity will drag on the US economy more than previously expected, Goldman Sachs economists said on Saturday.

The bank sees gross domestic product growing by 25% in the third quarter, down from its previous expectation of a 33% increase. The year's total economic contraction will worsen to 4.6% from 4.2%, the team led by Jan Hatzius wrote in a note to clients.

The downward revision was largely fueled by a slower-than-expected recovery in consumer spending. The recent resurgence in coronavirus cases has kept Americans from traveling and returning to restaurants and stores. Stunted spending on key services is likely to push a consumer comeback into September, the team said.

"The healthy rebound in consumer services spending seen since mid-April now appears likely to stall in July and August as authorities impose further restrictions to contain virus spread," they wrote.

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The manufacturing and construction industries have largely avoided such a halt and will continue their recovery, Goldman added. The firm maintained its projection of 8% growth in the fourth quarter.

Goldman's latest economic forecast arrived as the US sees surging coronavirus infections. Daily new cases passed 50,000 over the holiday weekend, and outbreaks in California, Texas, Florida, and other states have meant the reimplementation of strict lockdown measures.

Goldman said that while Texas' mask mandate showed that some states were reacting swiftly to the uptick in cases, it's "admittedly hard to know" how the rest of the nation will adapt in the coming weeks.

"A combination of tighter state restrictions and voluntary social distancing is already having a noticeable impact on economic activity," the economists said.

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Though the pandemic will put off an economic recovery into next year, late reopenings will accelerate growth in 2021, the bank said. Recent positive updates from trials of coronavirus vaccine candidates also suggest a treatment could reach the market next year, the economists said.

Several economists have pointed to an effective coronavirus treatment as fuel for consumer confidence, as the risk of contracting COVID-19 could keep Americans at home even as economies reopen. In all, vaccine hopes and delayed reopening benefits drove Goldman to boost its first-quarter forecast to 8% from 6.5%.

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