- Goldman Sachs has cut its second-quarter outlook for GDP from a 33% gain to 25%.
- That would still be the best single-quarter gain since at least 1947.
- The firm cited rising coronavirus cases and their associated economic impact as the reason for the less optimistic outlook.
Rising coronavirus cases will limit growth in what will be an otherwise robust third-quarter rebound in the U.S., according to Goldman Sachs.
The bank's economists now see third-quarter gross domestic product rising by 25% on an annualized basis. That's down from the initial estimate of 33%, with the reduction due primarily to concerns that increasing virus cases in states such as Florida, Texas and Arizona will slow the pace of reopening.
"The sharp increase in confirmed coronavirus infections in the US has raised fears that the recovery might soon stall," Jan Hatzius, Goldman's chief economist, said in a note. "Although a significant part of the increase reflects higher testing volumes ... a broader look at the CDC criteria for reopening shows that not only new cases but also positive test rates, the share of doctor visits for covid-like symptoms, and hospital capacity utilization have deteriorated meaningfully in the last few weeks."
GDP fell 5% in the first quarter, part of a mostly self-induced recession aimed at stopping the coronavirus spread. It was the biggest one-quarter drop since the fourth quarter of 2008, during the Great Recession.
As cases decreased, states slowly began reopening amid hopes that the sharp drawdown would be short-lived. Indeed, even if Goldman's reduced call is correct, that would mark, by a wide margin, the biggest quarterly rebound since at least 1947.
The U.S. has seen 340,000 new virus cases over the past week, a rise of 13.4%. That has come with 3,447 deaths, a 2.9% increase.
Hatzius said he still sees reason for optimism.
Manufacturing and construction have quickly turned back to expansion after suffering their worst rollbacks since the financial crisis. The economy added another 4.8 million jobs in June as the unemployment rate fell to 11.1%.
Moreover, he cited medical advances that, combined with renewed restrictions in hard-hit states, could bring the virus reproduction rate below 1, when the outbreak is likely to die out.
Political considerations also figure in: President Donald Trump's landmark rollback in corporate tax rates likely would be reversed should he fail to gain reelection this year. But Hatzius said that also would curtail Trump's trade protectionism, which has jolted markets at multiple points over the past three years.
"Although tensions with China will undoubtedly persist regardless of the election outcome, a re-escalation of the trade war would become less likely and the prospects for international cooperation on vital issues such as climate change would improve," Hatzius wrote.
Still, Goldman expects that U.S. stocks will underperform against their global competitors as the nation "underperforms in the near term as it partly reverses its overly hasty reopening in the consumer sector."