Economic Outlook Has Grown Even Darker, Goldman Sachs Says

Michael Rainey

The economy is expected to shrink at an annualized rate of 34% in the second quarter this year, according to the latest estimate from economists at Goldman Sachs.

The new analysis paints a darker picture of where the economy is headed than even the notably pessimistic report from Goldman released less than two weeks ago, which predicted a 24% decline in GDP on an annualized basis in the second quarter. Goldman says that the "sky-high jobless claims numbers" along with anecdotal evidence of weakness led to the most recent revision.

The economists expect GDP to shrink 9% on an annualized basis in the first quarter, worse than the 6% decline they predicted in the previous report. As this CNBC chart makes clear, that would mean that the first two quarters of 2020 would be the worst for GDP growth since 1948 by a considerable margin.


For the full year, Goldman projects a 6.2% decline in GDP, which would be the worst annual figure since the Great Depression.

Unemployment is also seen as coming in worse than expected. The Goldman team had projected 9% unemployment by the end of June, but now foresees it rising to 15%.

Light at the end of the tunnel: The economists say that the current emergency monetary and fiscal programs are setting the stage for a rapid recovery in the second half of the year, and could produce a 19% jump in economic activity on an annualized basis in the third quarter, up from the 12% rate projected in the last report. If that scenario pans out, the third quarter would be the best quarter for growth since at least 1948.

Or maybe not: Some economists are starting to doubt that there will be a V-shaped recovery along the lines predicted by Goldman Sachs. “We have no certainty the virus will be gone by the end of the second quarter,” Nobel prizewinner Joseph Stiglitz told Bloomberg News. If the pandemic “lasts through the summer, then all the effects will be amplified” and the economy will continue to suffer.

Instead of a V-shaped recovery, with a sharp decline followed by an equally sharp rise, Moody’s Analytics economist Mark Zandi is forecasting something more like a “Nike swoosh.” Zandi thinks the economy could drop 25% in the second quarter, rebound about 15% in the third, but then stall, limping along for an extended period of time.

“Past pandemics lasted years, not months,” says Tom Orlik, chief economist at Bloomberg Economics. “Scientists at Imperial College London are warning containment measures may have to stay in place for 18 months.”

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