- Goldman Sachs has made a huge change to its GDP forecast.
- Coronavirus closures have prompted the investment bank to slash its Q2 expectations to – (% before a huge rebound in Q3 and Q4.)
- Could the forecast be linked to ex-Goldman Treasury Secretary Stephen Mnuchin’s efforts to coax Republican lawmakers into signing off on more stimulus?
If you need proof that no-one on Wall Street knows what the heck is going to happen over the next few weeks, look no further than its most prominent investment bank. Goldman Sachs expects U.S. GDP to tank a historic 300% in Q2, then miraculously come back to life as the coronavirus disappears.
Goldman Sachs Scrambles To Update It’s GDP Forecast
To put Goldman’s GDP prediction into context, it would probably be one of the worst readings ever recorded for any quarter.
Source: CNBC
It isn’t hard to see how Goldman came up with this number, as economic activity in the US has been shuttered in its most economically significant areas like Texas, California and New York.
Additionally, the two main corridors of trade, the northern border with Canada and the southern border with Mexico, have been closed to all but essential travel.
The economy faces more than just the coronavirus, as a collapse in oil prices triggered by a price war between Saudi Arabia and Russia threatens America’s position as one of the world’s largest oil producers.
So, the scale of the downward revision made by Goldman’s economists (less than a week ago they forecast a -5% contraction) seems quite reasonable. The fact that they had to make such a drastic change is not.
Either Wall Street was not paying attention again, or someone was just far too optimistic. Hopefully, no clients placed too many bullish trades based on that rose-tinted initial prediction.
Here is Goldman Sachs’ justification for its initial forecast:
Over the last few days, social distancing measures have shut down normal life in much of the US. News reports point to a sudden surge in layoffs and a collapse in spending, both of which appear to be historic in size and speed. We are therefore making further large downward revisions to our economic forecast.
Coronavirus Fight Is Going To Be Economic War
The spread of coronavirus has proven to be alarmingly rapid in Europe, with Italy and Spain both recording their worst death tolls on Friday, March. All this is creating a very testy Donald Trump at the daily coronavirus briefings.
It has not all been bad news, as (China claimed that it had no new cases of COVID – for the first time
, providing a ray of hope as North Americans and Europeans adapt to the “shelter in place” lifestyle.
Where Goldman’s forecast gets a bit odd is its prediction for Q3 and Q4. Anticipating % and % gains, respectively , the investment bank’s economists are calling for an impressive rebound in activity when coronavirus bids a hasty retreat.
It isn’t hard to see how Goldman came up with this number, as economic activity in the US has been shuttered in its most economically significant areas like Texas, California and New York
Additionally, the two main corridors of trade, the northern border with Canada and the southern border with Mexico, have been closed to all but essential travel.
The economy faces more than just the coronavirus, as a collapse in oil prices triggered by a price war between Saudi Arabia and Russia threatens America’s position as one of the world’s largest oil producers.
So, the scale of the downward revision made by Goldman’s economists (less than a week ago they forecast a -5% contraction) seems quite reasonable. The fact that they had to make such a drastic change is not.
Either Wall Street was not paying attention again, or someone was just far too optimistic. Hopefully, no clients placed too many bullish trades based on that rose-tinted initial prediction.
Here is Goldman Sachs’ justification for its initial forecast:
Over the last few days, social distancing measures have shut down normal life in much of the US. News reports point to a sudden surge in layoffs and a collapse in spending, both of which appear to be historic in size and speed. We are therefore making further large downward revisions to our economic forecast.
Coronavirus Fight Is Going To Be Economic War
The spread of coronavirus has proven to be alarmingly rapid in Europe, with Italy and Spain both recording their worst death tolls on Friday, March
It has not all been bad news, as (China claimed that it had no new cases of COVID – for the first time
, providing a ray of hope as North Americans and Europeans adapt to the “shelter in place” lifestyle.
Where Goldman’s forecast gets a bit odd is its prediction for Q3 and Q4. Anticipating % and % gains, respectively , the investment bank’s economists are calling for an impressive rebound in activity when coronavirus bids a hasty retreat.
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