The U.S. has the largest economy in the world and as a result, even a minor issue might affect the global economy. Currently, the coronavirus pandemic is the biggest problem not only for the local economy but the global economy as well. Recently, world-famous investment bank Goldman Sachs decided to revise its position on how the coronavirus will impact the U.S. economy.
According to revised projections, the unemployment rate will peak at around 15% later this year. It means that in comparison with the original forecast, Goldman Sachs changed its forecast from 9% to 15%.
It is worth mentioning that, investment bank expects gross domestic product (GDP) to fall 9% in the first quarter of 2020. Moreover, in the second quarter, Goldman expects GDP to fall 34%, which would be the worst period after the Second World War.
As a reminder, investment bank expected that GDP would fall 6% in the first quarter and the second quarter according to bank GDP would fall 24%.
Coronavirus, stimulus package and Goldman Sachs
Hopefully, according to revised projections, in the third quarter of this year, the country’s economy would strengthen its positions. In that quarter, Goldman expects GDP to grow by 19%.
It is worth mentioning that, according to Goldman Sachs, fiscal and monetary support would be the main driving force. Congress recently approved a $2 trillion rescue package aimed at a variety of targets. Moreover, Goldman expects that another measure is on the way specifically aimed at supporting state governments.
Furthermore, the Federal Reserve decided to cut its benchmark interest rate near zero. Also, Federal Reserve unveiled several other programs to support the economy.
It is important to mention that, thanks to steps stated-above along with social distancing and increased testing, it will be possible to lower the number of new infections over the next month. Goldman Sachs expects that slower virus spread as well as adaption by businesses and individuals, would help the economy.
Unfortunately, for the full year, Goldman still expects a 6.2% decline in GDP. As a result, this would be the worst result in decades.
Interestingly, the St. Louis Federal Reserve estimated that unemployment could hit 32% due to 47 million layoffs. However, as in the case of Goldman Sachs, President of St. Louis Federal Reserve James Bullard also expects the economy to stage a strong recovery, after the turbulent period.
For example, in the fourth quarter of 2008, GDP fell by 8.4%. However, according to Goldman Sachs, in the first quarter of 2020 GDP is expected to fall 9%.
Leave a Comment