The US economy will contract sharply late this month and next month as consumers and businesses slash spending, with the short downturn likely be officially deemed a recession, Goldman Sachs Group Inc said.
The world’s largest economy will shrink 5 percent in the second quarter after zero GDP growth in the first three months of the year, the firm’s economists wrote in a note on Sunday.
They cut their full-year forecast to 0.4 percent growth from 1.2 percent on expectations for growth of 3 percent and 4 percent in the third and fourth quarters and strong gains early next year.
“The uncertainty around all of these numbers is much greater than normal,” the economists wrote.
Consumers and businesses will continue to cut travel, entertainment and restaurant spending, while supply chain disruptions and tightening in financial conditions will further dent growth, they said.
Goldman’s projections followed US Treasury Secretary Steven Mnuchin saying earlier on Sunday that the COVID-19 pandemic probably would not tip the US into recession, and came before the US Federal Reserve cut rates to near zero.
“We’re clearly going to have a slowdown,” Mnuchin told an ABC interviewer, while adding that “later in the year, obviously the economic activity will pick up as we confront this virus.”
Peter Navarro, a top trade adviser to US President Donald Trump, separately told the Fox Business network: “I think the decisions we make over the next week or two will determine whether we have a significant downturn or not.”
The US National Bureau of Economic Research’s Business Cycle Dating Committee, a panel whose determinations of when US expansions begin and end are accepted as official, would probably classify such a sharp contraction as a recession even though it involves only one quarter of contraction, the economists said.
The group has previously said that just a few months of contraction can meet its definition if it is deep enough, the economists said.
Meanwhile, growth is forecast to nearly halt in the second quarter and recession odds have jumped, a Bloomberg survey of economists that was conducted from March 6 to Thursday showed.
Growth was seen as slumping to a 0.1 percent annualized pace in the April-to-June period, while the economy now faces a 45 percent chance of a recession over the next 12 months.
Additional reporting by AFP
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