Goldman Sachs says advanced economies will shrink by 35% in the second quarter but job losses are 'temporary'

Reuters

Woman wearing a protective mask uses her mobile phone, as a coronavirus outbreak continues to grow in northern Italy, in Turin

• Advanced economies will shrink about 35% in the second quarter of 2020 compared to the first three months, according to Goldman Sachs' chief economist Jan Hatzius.
• Hatzius praised global policymakers for their responses to keep households and businesses afloat, but gave counsel that Europe should do more and wealthy countries need to help developing economies.
• "Emerging economies will need a lot more help from the rich world," Hatzius wrote.
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Advanced economies will shrink by about 35% in the second quarter from the prior three months of 2020, Goldman Sachs predicted in a note dated April 13.

The forecast contraction equates to four times as much as the previous record set in 2008 during the financial crisis, according to annualized figures from Goldman Sachs, and is causing a labour market implosion.

Although most job losses are in the form of temporary layoffs and unemployment benefits have been raised sharply, the separation of workers from their jobs is "dramatic", the bank's New-York based chief economist Jan Hatzius wrote in a note to clients.

While the number of new active coronavirus cases appears to be peaking across the globe, optimists might look at this as a signal to reopen the economy, but pessimists will counter that the main reason for this is social distancing, the note said.

The improvement is "probably a direct consequence of social distancing and the plunge in economic activity, and could reverse quickly if people just went back to work," Hatzius wrote.

Global policy makers have set up impressive responses to try to replace people's incomes and have aggressively countered threats to the flow of credit, Hatzius wrote, but said efforts in Europe should be scaled up and have an unconditional "whatever it takes" approach commitment.

To get through the severe crisis, "emerging economies will need a lot more help from the rich world," he said, highlighting measures such as bilateral loans, IMF and World Bank financing and outright aid.

As the deal toll soared in the US and western Europe, global cases of the novel coronavirus have reached about 2 million with more than 100,000 fatalities.

Last week, the International Monetary Fund raised its emergency lending facilities after more than 90 countries requested aid from the IMF.

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