Goldman cuts fourth-quarter and first-quarter GDP forecasts, cites Covid resurgence

Published Mon, Nov 23 20208:17 AM ESTUpdated Mon, Nov 23 20209:36 AM EST

(This story is for CNBC Pro subscribers only.) Goldman Sachs slashed its economic outlook for the current quarter and first quarter of 2021 as the U.S. grapples with a new wave of Covid-19 infections and fresh lockdown restrictions. "The rapid and broad-based resurgence of the coronavirus has led us to downgrade our Q4 and Q1 GDP forecasts," Jan Hatzius, Goldman's chief U.S. economist, said in a note. "The pace of recovery would likely slow in the winter months, with a lack of fiscal support and a deteriorating virus situation pointing to significant downside risks." The bank now expects a 3.5% annualized GDP growth in the fourth quarter, down from 4.5% previously forecast. And the growth rate in the first quarter of 2021 is expected by the firm to be just 1%, compared with 3.5% previously expected. The country reported more than 195,500 new cases of the coronavirus on Friday, a record-high spike less than a week before Thanksgiving. Friday's jump of nearly 200,000 cases brings the seven-day average of new cases up over 167,600, an increase of nearly 20% compared with a week ago, according to a CNBC analysis of data compiled by Johns Hopkins University. Many states and cities have rolled back reopening plans and implemented fresh restrictions to curb the spread. California Gov. Gavin Newsom issued a limited stay-at-home order on a majority of the state's residents, while New York City has shut down its public schools. "Daily infection rates have since accelerated to well above Western European levels, and daily deaths have reach their highest levels since late May," Hatzius said." Restaurant activity growth has fallen by 10.5pp during the last seven days relative to the October average, with an even more pronounced slowdown in parts of the country experiencing a sharper pickup in coronavirus infections." Still, Goldman's new forecasts only reflect a slight overall decrease in activity for 2021 as it expects the economic rebound to ramp up in the second half of the year. Goldman increased its Q2 and Q3 growth forecasts to 9.5% and 7%, respectively, up from 7% and 6% previously. The bank's updated outlook implies a GDP growth of 5% in 2021, down from 5.3% previously. For 2022, Goldman expects an expansion rate of 4.1%. "We retain high conviction in our arguments for above-consensus GDP growth in 2021 and 2022," Hatzius said. "The larger drag in the winter should imply an even larger reacceleration on the back of mass immunization." A few other major Wall Street firms also lowered their forecasts for the near future, seeing a bumpier economic recovery amid a worsening pandemic. JPMorgan economists now see an economic contraction of 1% in the first quarter , followed by a rebound of 4.5% in the second quarter and a growth rate of 6.5% in the third quarter. Bank of America projected a 1% GDP growth in the first quarter, and with more fiscal stimulus and a waning pandemic, the bank expects a pop in GDP to 7% in the second quarter and 5% in both Q3 and Q4. "We believe that the negative news will dominate over the next few months as the virus rise is accompanied by a fiscal policy vacuum," Michelle Meyer, Bank of America's chief U.S. economist, said in a note. "This will depress 1Q GDP growth as some businesses are forced to scale back and consumers are less willing/able to spend." The U.S. economy expanded at a 33.1% annualized pace in the third quarter, its fastest pace ever, following a record 31.4% plunge in the second quarter as the pandemic wreaked havoc across the nation. — CNBC's Michael Bloom contributed reporting.

A shopper wearing a face mask browses merchandise beside bare shelves due to the coronavirus disease (COVID-19) pandemic at a Target store in King of Prussia, Pennsylvania U.S. November 20, 2020.

Mark Makela | Reuters

(This story is for CNBC Pro subscribers only.)

Goldman Sachs slashed its economic outlook for the current quarter and first quarter of 2021 as the U.S. grapples with a new wave of Covid-19 infections and fresh lockdown restrictions.

"The rapid and broad-based resurgence of the coronavirus has led us to downgrade our Q4 and Q1 GDP forecasts," Jan Hatzius, Goldman's chief U.S. economist, said in a note. "The pace of recovery would likely slow in the winter months, with a lack of fiscal support and a deteriorating virus situation pointing to significant downside risks."