Goldman Sachs upgrades Q1 2021 GDP forecast to 5% after $900 billion stimulus bill passed

• The US economy will grow 5% in the first quarter of 2021, according to a new analysis from Goldman Sachs, which previously expected growth of 3% in the first three months of next year.
• The bank upgraded its first quarter GDP growth forecast after President Trump signed a $900 billion stimulus bill on Sunday, which was larger in size and came sooner than Goldman expected.
• The inclusion of $600 stimulus checks in the bill will likely lead to a "large increase" in disposable income early next year, Goldman said.
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The US economy will grow at a faster clip in 2021 after President Donald Trump signed a $900 billion stimulus bill on Sunday, according to a new analysis from Goldman Sachs.

The bank raised its first quarter 2021 GDP growth to 5% from 3% in a note on Sunday, due to the larger size and sooner than expected stimulus bill, which includes $600 stimulus checks, expanded unemployment benefits, and a second round of the Paycheck Protection Program for small businesses.

Goldman had expected a $700 billion stimulus bill that didn't include a second round of stimulus checks to be enacted after President-elect Joe Biden's inauguration.

But now, since the passage of the bill, Goldman expects a "large increase" in disposable income early next year, with spending to lag into subsequent quarters due to the ongoing COVID-19 pandemic. This will likely lead to "more pent-up demand later in the year following mass vaccination," Goldman said.

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And if Congress goes ahead with Trump's demand for $2,000 stimulus checks, disposable income would increase "significantly further" next year. The 2020 recession caused by the COVID-19 pandemic was unique in the sense that personal disposable income actually increased meaningfully as people benefitted from stimulus checks and expanded unemployment benefits.

Goldman also increased its 2021 GDP growth forecast to 5.8% from 5.3% to account for the newly passed stimulus bill.

"The new path implies meaningfully higher levels of output in all four quarters and lifts 2021 annual growth to 5.8% and Q4 growth to 5.6% (vs. 5.1% previously)," Goldman explained.