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Goldman Sachs Predicts 1% Global GDP Contraction

Goldman Sachs also expects unemployment to increase to 9% the “next couple of quarters,” a level not seen since 2008 when unemployment hit 10%.

Source: Goldman Sachs

In a memo to clients, Goldman Sachs wrote that they expect global gross domestic product to shrink by 1% in 2020. The investment bank based this prediction on the extraordinary actions governments are taking to contain the coronavirus.

“The coronacrisis — or more precisely, the response to that crisis — represents a physical (as opposed to financial) constraint on economic activity that is unprecedented in postwar history,” the investment bank said in a note to its clients published late on Sunday.

Last week, Goldman predicted US GDP to fall 24% in the second quarter of 2020. A drop of that size would be a record, nearly 2 1/2 times the 10% drop seen in 1958. This prediction was mostly double compared to other analysts. JPMorgan Chase & Co. expects gross domestic product to shrink at an annualized rate of 14% in the April-June period, while Bank of America Corp. and Oxford Economics both see a 12% drop.

“The sudden stop in US economic activity in response to the virus is unprecedented, and the early data points over the last week strengthen our confidence that a dramatic slowdown is indeed already underway,” the Goldman Sachs economist Jan Hatzius wrote in a Friday note.

The analysis forecast that the economy would bounce back to an annualized 12% growth rate in the third quarter and 1% in the final quarter. The bounceback, however, would still leave the overall 2020 economy 3.8% smaller than last year.

Goldman Sachs also expects unemployment to increase to 9% over the “next couple of quarters,” a level not seen since 2008 when unemployment hit 10%. These numbers were low compared to Federal Reserve Bank of St. Louis President James Bullard’s prediction that unemployment could reach 30% in the second quarter.


Source: Equities News

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