Goldman cuts US first-quarter GDP forecast to just over 1% on the coronavirus

  • Goldman Sachs now expects the U.S. economy to grow just 1.2% in the first quarter due to the coronavirus.
  • That growth rate is drastically slower than the 2.1% increase in the fourth quarter and 2.3% for the full year 2019.
  • “The risks are clearly skewed to the downside until the outbreak is contained,” said Jan Hatzius, Goldman’s chief U.S. economist.

Goldman Sachs lowered its U.S. growth outlook for the first quarter as the domestic economy takes a hit from the global coronavirus outbreak.

The bank slashed its U.S. GDP growth forecast to just 1.2% from 1.4%, seeing a more severe drag from the epidemic. That growth rate is drastically slower than the 2.1% increase in the fourth quarter and 2.3% for the full year 2019.

“The risks are clearly skewed to the downside until the outbreak is contained,” Jan Hatzius, Goldman’s chief U.S. economist, said in a note on Monday. “An increasing amount of companies [are] suggesting potential production cuts should supply chain disruptions persist into Q2 or later.”

The number of coronavirus cases outside China surged recently, stoking fears of a prolonged global economic slowdown from the virus spreading. Stocks suffered a steep sell-off on Monday, with the Dow dropping 800 points and erasing its gains on the year.

South Korea raised its coronavirus alert to the “highest level” over the weekend, with the latest spike in numbers bringing the total infected to more than 750 — making it the country with the most cases outside mainland China. Meanwhile, outside of Asia, Italy has been the worst affected country so far, with more than 130 reported cases and three deaths.

To be sure, Goldman still expects “a negligible hit” to U.S. overall activity from supply chain production disruptions because there seems to be ample inventory to power manufacturing for a while.

“Lower production outside of China due to supply chain disruptions has remained negligible thus far, and that most sectors have enough inventory to continue production as normal until at least Q2,” Hatzius said.

Goldman does see some of the activity lost coming back in the second quarter if the virus is contained. The firm expects second-quarter U.S. GDP to tally 2.7%.

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Source: https://www.cnbc.com/2020/02/24/goldman-cuts-us-q1-gdp-forecast-to-just-over-1percent-on-coronavirus.html

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