Goldman Sachs cut U.S. economic activity forecast in Q3, Q4

According to the latest news, Goldman Sachs cut its forecast for U.S. economic activity in the third and fourth quarters of 2021. A leading global investment banking named sluggish consumer spending on services and the threats posed by the Covid-19 Delta strain as the reason for this.

Throughout the coronavirus pandemic and the start of the recovery, Americans raised spending on goods. Therefore, the demand increased while the world was facing shortages of materials. Remarkably, used car prices skyrocketed, along with furniture and other household items.

However, in normal times, consumers spend much more on services like concerts or dining out. Notably, the increased spending on goods that has defined the pandemic recovery so far isn’t sustainable to keep the U.S. economy improving.

According to Ronnie Walker, an economist at Goldman Sachs, rotation is necessary in how individuals spend their cash.

However, concerns around the Delta strain of COVID-19 are keeping services spending down.

Walker also added that the services categories where spending remains weak are generally associated with high virus risk (live entertainment events) or connected to office-based work (ground transportation or dry cleaners).

Goldman cut its GDP growth forecast by one percentage point in the second half of 2021

Considering all this, Goldman Sachs cut its GDP growth forecast by one percentage point in the second half of the year. As we know, Gross Domestic Product is the widest measure of economic activity.

Between July – September period, the Wall Street bank anticipated 8.5% annualized growth before falling to 5% in the last three months of 2021. For 2021, Goldman anticipates 6.6% GDP growth.

However, from 2022 on, the pace of expansion will slow further. It’s likely to trend back toward the 1.5% to 2% annualized growth what the country typically witnessed before the COVID-19.

Nearly half of Americans have already received the two doses of the COVID-19 vaccine. However, the virus infections in the United States are soaring. In 48 states, the rate of new infections in the past week increased by 10% compared to the previous week. Meanwhile, in 34 of those states, the rate of new infections surged by more than 50%

Remarkably, the economy is still not back to normal. The resurgence of infections could keep individuals from fully participating in the economy.

Walker added that some consumers remain cautious over the spread of the Delta variant, delaying a full recovery.

Goldman’s economists consider the Delta variant’s impact on the economy will be somewhat limited. Remarkably, the virus situation already seems to be improving in Britain and other countries where it spread earliest.