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Goldman Sachs warns of 34pc contraction in US

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Tough measures: US president Donald Trump has imposed social distancing rules

Tough measures: US president Donald Trump has imposed social distancing rules

AP

Tough measures: US president Donald Trump has imposed social distancing rules

Goldman Sachs says it expects the second-quarter US economic decline will be much greater than it had previously forecast and unemployment will be higher, citing anecdotal evidence and "sky-high jobless claims numbers" resulting from Covid-19.

Goldman is now forecasting a real GDP sequential decline of 34pc for the second quarter on an annualised basis, compared with its earlier estimate for a drop of 24pc.

It has also cut its first-quarter target to a decline of 9pc from its previous expectation for a 6pc drop, according to chief economist Jan Hatzius.

The firm now sees the unemployment rate rising to 15pc by mid-year compared with its previous expectation for 9pc.

Jobless numbers show an even bigger collapse in output and the labour market than Goldman previously expected, which Mr Hatzius wrote "raises the spectre of more adverse second-round effects on income and spending".

The global spread of the coronavirus has pummelled economic expectations as many businesses have closed their doors, at least temporarily, as governments ask people to stay at home to curtail further infections.

US president Donald Trump said on Monday that federal social distancing guidelines, including discouragement of gatherings larger than 10 people, might be toughened.

On Sunday, he announced an extension of current restrictions to April 30.

Still, Goldman expects easing monetary and fiscal policy to help contain second-round effects on the economy and to add to growth down the road. Goldman cited a much bigger-than-expected phase-three US fiscal package and forecast a phase-four package for state fiscal aid, and the likelihood that the Fed will use the $454bn (€413bn) addition to the Treasury's Exchange Stabilisation Fund aggressively to help credit flow.

Despite substantial uncertainty, Goldman said lockdowns and social distancing should sharply lower new infections in the next month.

So a slower virus spread and adaptation by businesses and individuals "should set the stage for a gradual recovery in output starting in May/June".

It raised its expectation for a third-quarter GDP rebound to an annualised jump of 19pc quarter-over-quarter, up from its previous target of 12pc.

It expects April GDP to be 13pc below the January and February trend, but that the drag then fades gradually by 10pc each month in the services industry and by 12.5pc in manufacturing and construction.

Reuters

Irish Independent