Goldman predicts unprecedented decline in economic activities with Q2, 2020 expected to contract 24

Over the last few months, the war against Covid-19 through health directives such as social distancing has shut down the normal life in the US. Reports indicate a sudden surge in layoffs and a decline in consumer expenditure, both in size and speed that has never been witnessed before. Operations such as stores, schools, manufacturing plants, and construction sites have also been shut down, leaving the economy running on ‘essential services’ alone. These developments led to a sharp drop in GDP in the 1st quarter as economists warn of a sharper drop in the 2nd quarter.

According to Goldman Sachs Inc. economists, the Covid-19 pandemic will inflict greater economic suffering than they had previously anticipated. Earlier, the economists predicted that the economy would have a 5% decline in Q2 after a flat Q1.

On March 20, the economists forecasted an unprecedented 24% decline in Q2 GDP. This was following a 6% decline in Q1 as the country was slowly preparing to respond to the impacts of Covid-19. However, they expect a 12% and 10% bounce back in Q3 and Q4, respectively, with a 9% surge in unemployment. Based on an annual average basis, they predicted that the GDP would contract by 3.8% for 2020.

Elsewhere, other financial institutions seem to have a different forecast for the April to June period. The Bank of America has nearly the same figure, with Goldman Sachs at a 25% decline in the GDP of Q2. On the other hand, JPMorgan Chase & Co. have their Q2 predictions at a 14% decline. On another account, the President of Federal Reserve Bank of St. Louis, James Bullard in a

Bloomberg interview, predicted the unemployment rate could hit 30% in Q2 because of the economic shutdowns, with an unprecedented drop by 50% in GDP. All these predictions come as economists warn the world is already in its first recession since 2009’s 0.8% contraction.

Goldman’s prediction is one of the most pessimistic on Wall Street. In case the Goldman’s economists are right, it means that the US will experience the sharpest single-quarter GDP decline since they started measuring GDP using its current form.

”Why such an extreme forecast, especially in Q2? The sudden stop in US economic activity in response to the virus is unprecedented, and the early data points over the last week strengthen our confidence that a dramatic slowdown is indeed already underway,” Goldman Sachs’ economists write. ”In some US states, authorities have now issued statewide shutdown orders to slow the pace of virus spread and avoid overwhelming the health care system, measures that will further reduce the level of economic activity.”

These kinds of predictions are raising fears of depression in the US. Still, economists from Morgan Stanley in a separate report stated that a sustained contraction should be avoided considering the response of fiscal and monetary policymakers. However, both Morgan Stanley and Goldman Sachs are optimistic about recovery as we begin the third quarter, despite being subject to risks.

The Covid-19 pandemic is surrounded by many uncertainties. No one knows when this is going to be over, even as the government plans to reopen the economy cautiously. Despite all the ongoing crisis, we should keep our hopes alive but still expecting the worst.

Works cited.

https://fortune.com/2020/03/23/morgan-stanleygoldman-sachs-estimate-coronavirus-economicpain/ https://www.barrons.com/articles/u-s-economycould-contract-by-24-next-quarter-goldman-sachssays-51584713292 https://www.cnbc.com/2020/03/20/goldman-seesan-unprecedented-stop-of-economic-activity-with2nd-quarter-gdp-contracting-by-24percent.html