Market Insider

Goldman sees unprecedented stop in economic activity, with 2nd quarter GDP contracting 24%

Key Points
  • Goldman Sachs economists forecast a historically sharp and swift recession, with second-quarter GDP sinking a stunning 24% after a 6% decline in the first quarter.
  • The economists had expected a decline of 5% in the second quarter, after a flat first quarter but they said social distancing measures have affected many sectors of the economy and will hit the first and second quarter hard.
  • The economists still expect a spring back in the third quarter, of 12%, but they see unemployment peaking at 9%.
"Theater Closed" signs are posted in front of the AMC
Frederic J. Brown | AFP | Getty Images

Goldman Sachs economists on Friday forecast an unprecedented 24% decline in second quarter gross domestic product, following a 6% decline in the first quarter, based on the economy's sudden and historic shutdown as the country responds to the coronavirus pandemic.

The economists then expect a bounce back of 12% in the third quarter and 10% in the fourth quarter, but unemployment will surge to 9%. They also expect GDP to contract by 3.8% for the full year on an annual average basis, and 3.1% on a fourth quarter over fourth quarter basis. 

Just five days ago, Goldman economists had expected the economy to trough with a decline of 5% in the second quarter after a flat first quarter. They had expected a resurgence in the second half and full year growth of 0.4%.

"Over the last few days social distancing measures have shut down normal life in much of the U.S. News reports point 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," the economists said. "These developments argue for a much sharper drop in GDP in Q1 and Q2."

In the past week, schools, public buildings, restaurants and stores across the country have shut down.

The state of California issued a stay at home order for its 40 million residents, and on Friday morning, New York state said it was mandating 100% of the workforce to stay home, excluding essential services. 

President Donald Trump has told Americans to stay away from bars and restaurants, and a number of states have ordered those businesses to close, resulting in the layoff of millions of workers.

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