Goldman Sachs slashes its first-quarter GDP forecast amid latest coronavirus chaos

Advertisement
Goldman Sachs slashes its first-quarter GDP forecast amid latest coronavirus chaos

Advertisement
People wear protective masks at Venice Carnival, which the last two days of, as well as Sunday night's festivities, have been cancelled because of an outbreak of coronavirus, in Venice, Italy February 23, 2020. REUTERS/Ohad Zwigenberg
  • Goldman Sachs lowered its US gross domestic product forecast for the first quarter to 1.2%, down from 1.4% previously, according to a client note on Monday.
  • The forecast cut comes amid concern that the coronavirus will limit global growth and be a negative demand on US supply and demand.
  • Still, Goldman expects that US GDP will recover in the second quarter of the year and reach 2.7% for the period.
  • Read more on Business Insider.

Goldman Sachs cut its expectations for first-quarter US gross domestic product growth on Monday as the coronavirus outbreak roils markets.

The bank now expects US GDP to expand at an annualized pace of 1.2% in the first quarter, down 0.2 percentage points from its previous estimate. For context, US GDP was 2.1% in the fourth quarter of 2019, and 2.3% for full-year 2019.

Risks associated with the coronavirus are "clearly skewed to the downside, with an increasing amount of companies suggesting potential production cuts should supply chain disruptions persist into Q2 or later," a group of Goldman Sachs analysts led by chief US economist Jan Hatzius wrote.

The impact of the coronavirus on US growth will most likely come from reduced US good exports to China, reduced spending in the US by Chinese tourists and students, a decline in US retail services, and a decline in US production due to disruption of supply chains, according to the note.

Advertisement

"If US producers are unable to source intermediate inputs from China, they may have to cut production if no substitutes are readily available," said Hatzius.

So far, the flu-like illness has killed 2,626 people and infected more than 79,000 cases across 30 countries. On Monday, global stocks fell, with the Dow Jones industrial average shedding 1,000 points, spurred by the virus's spread to Iran, Italy, and South Korea, where it caused further deaths. At the same time, investors rushed into safe-haven assets, hoping to outrun increased market volatility.

Read more: 'It's a clear bubble': A former Goldman Sachs hedge fund chief sounds the alarm on flailing stocks - and warns the nefarious effects of coronavirus have 'only just started'

There could be good news for markets coming soon, as Goldman expects there will be a sharp reduction in new coronavirus infections by the end of the first quarter, limiting the US growth impact from supply chain disruptions to a "negligible" hit to activity. The firm's base assumption is that China factory production will be fully normalized by late March.

Still, there are downside risks, and the impact "might become much larger if the coronavirus outbreak spreads quickly and slows down activity in other countries, disrupting supply chains further," Hatzius wrote.

Advertisement

Goldman expects that US GDP growth will recover in the second quarter and reach 2.7%.

Get the latest Goldman Sachs stock price here.

{{}}