By Ben Winck
November 09, 2020
Goldman Sachs updated its US gross domestic product outlook on Saturday, factoring in rising COVID-19 cases, a Biden presidency, and coronavirus vaccine updates.
US GDP will grow 3.5% in the first quarter of 2021, the team led by Jan Hatzius said, citing fallout from record-high case counts. That’s half of the 7% growth previously forecasted.
Still, the bank sees GDP returning to pre-pandemic levels in the US in the second quarter of 2021.
The Biden administration will push for continued fiscal stimulus, and a vaccine will aid the US’s containment of the virus throughout next year, the economists said.
The V-shaped economic recovery is alive and well, at least according to Goldman Sachs. Economists led by Jan Hatzius published their latest US gross domestic product forecast over the weekend, updating their outlook on near-term stimulus, COVID-19 vaccine development, and economic reopening. Goldman expects the recovery to cool after GDP leaped 33% in the third quarter, but recent developments have pushed back the timing of a full rebound.
The latest wave of coronavirus cases is the most important factor affecting future growth and is already placing a significant drag on GDP, the team said. The US economy will now grow just 3.5% in the first quarter of 2021, half of the 7% expansion previously expected by the bank.
Still, the firm sees the economy returning to pre-pandemic levels of output in the second quarter of next year. The government is poised to pass another $1 trillion in fiscal stimulus to boost the recovery, either before President-elect Joe Biden’s January 20 inauguration or early into his presidency, Goldman said.
The team also has “continued optimism” around a COVID-19 vaccine garnering Food and Drug Administration approval before the end of the year. Rapid immunization of high-risk populations would follow, and the broader population could receive the vaccine “within a few months,” they said. Widespread immunization could allow the US to fully reopen and recover at a faster rate.
Goldman’s update arrived before Pfizer announced on Monday its experimental vaccine has a 90% effectiveness rate in preventing COVID-19 in trial patients. The news lifted major stock indexes to record highs. Pfizer said it will soon apply for emergency use authorization from the FDA, which would allow it to speed up the rollout of its vaccine.
Goldman’s forecasts are slightly more optimistic than Wall Street’s consensus. The bank’s call for a 3.5% contraction in 2020 is 0.4 percentage points above the average estimate. Its 5.3% growth projection for 2021 beats the 3.8% consensus expectation, and its 3.8% 2022 estimate is one percentage point above the Street’s forecast. Despite taking more than a year, the coronavirus recession is “much more V-shaped than previous postwar cycles,” the team said.
“If we are right that a safe and effective vaccine arrives before long, the economy should soon get back onto a strong recovery path,” Goldman said, adding “a swift rebound again looks likely” should monetary and fiscal policy support continue to bolster household incomes.