Goldman raises economic growth outlook as it sees a vaccine approval this year

Published Mon, Aug 10 20209:17 AM EDTUpdated Tue, Aug 11 20207:07 AM EDT

Goldman Sachs has grown more optimistic about the arrival date for a coronavirus vaccine, causing it to upgrade its expectations for economic growth and cut its projection for the unemployment rate. The firm sees "at least one" vaccine approved by the end of 2020 and hitting the market for widespread distribution by the second quarter of 2021, progress that will boost consumer spending and generate stronger GDP readings and employment next year. In its revised forecast, Goldman still sees the jobless rate, currently at 10.1% , falling to 9% by the end of this year. However, it is projecting a decline to 6.5% by the end of 2021, which is half a percentage point less than its previous foreccast. On GDP, the economists also are leaving their 2020 estimates unchanged, with annualized gains of 25.2% in the third quarter and 8% in Q4. However for the full year of 2021, it sees GDP growing 6.2% on an annual average basis vs. its previous estimate of 5.6% and ahead of the Federal Reserve's projection of 5% . The firm's expectations are now for quarterly increases of 10%, 8%, 4% and 3% in 2021, against previous respective estimates of 8%, 6.5%, 5% and 4%. One reason for the optimism is that because the U.S. has struggled so much to contain the pandemic , it has increased the urgency for a vaccine. "The vaccine outlook has since become clearer and more positive, and the economic benefits for the US appear particularly large due to its leadership in the vaccine race and worse virus control," Goldman economist Joseph Briggs wrote. "As a result, we now expect that at least one vaccine will be approved this fall with widespread distribution and positive growth effects felt in the first half of 2021." There have been just over 5 million Covid-19 cases in the U.S., with about 163,000 deaths attributed to the virus, according to Johns Hopkins University. The U.S. government has funded three potential vaccines for Phase 3 trials. The competing companies are Moderna, AstraZeneca, which has partnered with the University of Oxford, and Pfizer and BioNTech. However there are some 42 companies that have vaccines in development, according to the Regulatory Affairs Professionals Society. Goldman's revised forecast comes with one caveat not medically related: the danger that Congress will not come up with an extension of rescue funds. The White House and congressional Democrats remain at an impasse over what a rescue package will look like. President Donald Trump signed a series of executive orders Saturday aimed at keeping funding going, but Goldman said legislation still will be necessary and remaining money from the Disaster Relief Fund will only keep extended unemployment benefits alive for another month. "Despite these forecast upgrades, downside risks have risen due to Congress's failure to pass a Phase 4 fiscal package. While [Saturday] night's executive orders [from President Donald Trump] postponed the fiscal cliff through August and we still expect a package worth around $1.5 trillion to become law by the end of the month, the risk of no further legislative action has increased and could pose a threat to the budding recovery."

Lisa Taylor receives a Covid-19 vaccination from RN Jose Muniz as she takes part in a vaccine study at Research Centers of America on August 07, 2020 in Hollywood, Florida.

Joe Raedle | Getty Images

Goldman Sachs has grown more optimistic about the arrival date for a coronavirus vaccine, causing it to upgrade its expectations for economic growth and cut its projection for the unemployment rate.

The firm sees "at least one" vaccine approved by the end of 2020 and hitting the market for widespread distribution by the second quarter of 2021, progress that will boost consumer spending and generate stronger GDP readings and employment next year.