Goldman Sachs just made the grimmest prediction yet about the economy in Q2
The bank today issued a research note with its projection for GDP loss in the second quarter of 2020: down 24%, the result of a “sudden stop for the U.S. economy.”
Overall, they expect a 6% drop in the first quarter. Even with significant positive growth in quarters three and four, that will work out to an annual loss of 3.8%.
The research note pointed to “a sudden surge in layoffs and a collapse in spending, both historic in size and speed, as well as shutdowns of many schools, stores, offices, manufacturing plants, and construction sites” as a reason for the downward revision.
The report assumed an 85% reduction in sports spending, 75% in transportation, and a 65% decline in revenues for hotels and restaurants.
Some other hard-hit sectors include domestic services (-50%), casino gambling (-90%), domestic services (-50%), social services (-30%), personal care (-30%), education (-15%), and non-profit services (-15%).
“We expect declines in services consumption, manufacturing activity, and in building investment to lower the level of GDP in April by nearly 10%, a drag that we expect to fade only gradually in later months,” the note read.
Goldman estimated unemployment to reach a 9% peak later in the year.
A note from Berenberg Capital Markets has some similarly grim predictions, with a projected -18% change in Q2 GDP. Berenberg pointed out that services use is almost 70% of total consumer consumption and almost 50% of total GDP, and of “153 million total workers, 109 million are in private service-providing industries,” with 33 million between retail, leisure, and hospitality.
Goldman expects an ongoing impact to the economy that will “fade only gradually” through at least 2121.
Plans to provide a stimulus by sending money to everyone sound ambitious but may not actually address the developing problem.
“The problem with giving people money to spend, is you have to be balancing that against the fact that you have social distancing rules preventing people from spending money,” said Steven Blitz, chief U.S. economist of TS Lombard. “What are you going to do, push all this spending online? That’s fine I guess for the broader economy, but it doesn’t necessarily help the local economy.”
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