The US economy will shrink far more than expected as the coronavirus outbreak halts economic activity and fuels an unprecedented spike in joblessness, Goldman Sachs analysts said on Tuesday.
The bank now expects second-quarter gross domestic product to contract by 34%, compared with its previous expectation of a 24% slide. Unemployment will quadruple from February lows to hit 15% by the second half of 2020, the team led by Jan Hatzius wrote.
Goldman’s downward revisions reflect the “sky-high jobless claims numbers” and Congress’ bigger-than-expected stimulus measure. Unemployment-insurance claims skyrocketed to a record 3.3 million in the week ended March 21, giving economists a first look at how quickly containment measures pummeled the economy. The data shows “an even bigger output and (especially) labor market collapse than we had anticipated,” Goldman said.
“This not only means deeper negatives in the very near term but also raises the specter of more adverse second-round effects on income and spending a bit further down the road,” the team added.
Yet such a chain reaction could be quelled by the government’s and the Federal Reserve’s massive relief policy actions. The $2 trillion stimulus bill bolsters unemployment benefits, issues direct payments to millions of Americans, and provides hundreds of billions of dollars in emergency loans to ailing businesses. A future package would likely focus on state aid, Goldman said.
The Fed has backed up the fiscal policy moves with monetary easing and is likely to use the $454 billion added to the Treasury Department’s Exchange Stabilization Fund to further lift credit stresses, the team added.
A “deeper trough” will give way to “a bigger rebound” as the virus threat subsides and economic activity resumes, Goldman said. Third-quarter GDP is projected to jump by 19%, compared with the firm’s previous estimate of a 12% gain. Still, according to the investment bank, the economy will shrink 6.2% through the year as the deeper slump warrants a longer recovery.
Source: Business Insider Malaysia