Goldman Sachs projects unprecedented economic contraction, rapid recovery

No one really knows for sure at this point what the economy will look like this year. I thought we’d get through this just fine until governments spontaneously decided to eliminate all economic activity on Sunday. In a week, they’ve really thrown us into Venezuela territory.

But for what it’s worth, here’s Goldman Sachs’ projection:

Goldman Sachs economists on Friday forecast an unprecedented 24% decline in second quarter gross domestic product, following a 6% decline in the first quarter, based on the economy’s sudden and historic shutdown as the country responds to the coronavirus pandemic.

The economists then expect a bounce back of 12% in the third quarter and 10% in the fourth quarter, but unemployment will surge to 9%. They also expect GDP to contract by 3.8% for the full year on an annual average basis, and 3.1% on a fourth quarter over fourth quarter basis. 

Just five days ago, Goldman economists had expected the economy to trough with a decline of 5% in the second quarter after a flat first quarter. They had expected a resurgence in the second half and full year growth of 0.4%.

“Over the last few days social distancing measures have shut down normal life in much of the U.S. News reports point to a sudden surge in layoffs and a collapse in spending, both historic in size and speed, as well as shutdowns of many schools, stores, offices, manufacturing plants and construction sites,” the economists said. “These developments argue for a much sharper drop in GDP in Q1 and Q2.”

In the past week, schools, public buildings, restaurants and stores across the country have shut down.

The state of California issued a stay at home order for its 40 million residents, and on Friday morning, New York state said it was mandating 100% of the workforce to stay home, excluding essential services. 

The one thing we have going for us is governments around the world are racing to put massive amounts of money into the hands of people.

We are obviously going to have massive debt restructurings. The amount of income support Trump is proposing, while extreme, is not enough to replace an income altogether for most people. I think Trump needs to stop hearing the pleas of people talking about bailing private jet services and more than double what he’s distributing to ordinary Americans. And get it out faster, like now.

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