Goldman Sachs officially predicts a coronavirus-driven recession will hit the US, sees GDP shrinking 5% in 2nd quarter
- The coronavirus pandemic will drag the US into a recession after a sharp decline to economic activity through the first half of the year, Goldman Sachs said Sunday.
- GDP growth will slow to a halt in the first quarter before shrinking 5% in the second quarter, the bank's analysts wrote.
- The slump will be followed by a strong rebound in the second half of the year, they added.
- While most recessions include two consecutive quarters of economic contraction, a looser definition used by the National Bureau of Economic Research would likely deem Goldman's projection sufficient for an economic recession, the bank said.
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The coronavirus' hit to US economic activity will hit the second quarter the hardest and likely drag the country into a recession, Goldman Sachs said.
The bank revised its quarterly gross domestic product estimates in a Sunday note, lowering its expectations for near-term expansion and upgrading projections for later in the year. Economic growth will halt in the first quarter before contracting 5% in the second quarter, the analysts wrote. The US will bounce back through the end of the year with 3% growth in the third quarter and 4% expansion in the last three months of 2020, they added.
Goldman now expects annual GDP growth to hit 0.4%, compared to its former 1.2% estimate. How quickly the country can rebound depends on several unclear variables, including warmer weather's effect on the infection rate and the effectiveness of social distancing measures, the analysts said.
"The uncertainty around all these numbers is much greater than normal," they added.
The demand slowdown driven by coronavirus will most drastically hit the travel, entertainment, and restaurant sectors, the analysts wrote. Major US cities have already called for restaurants to operate on a take-out-only basis to curb additional infection. Complex supply chain problems and continued tightening in financial conditions will likely cut further into economic growth, according to the bank.
A recession's technical definition calls for back-to-back quarters of negative growth, yet Goldman notes its single quarter of a sharp decline fits a looser interpretation. The National Bureau of Economic Research determines whether a US economic expansion officially begins or ends, and has previously deemed contractions lasting "just a few months" as sufficient for an economic recession.
"Would the NBER business cycle dating committee classify our new forecast as a recession, given that it involves only one quarter of strictly negative growth? It is not entirely clear, but we think the answer is probably yes," the team of analysts wrote.
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