US braces for economy to ‘shrink by a quarter’

24 Mar 20

The coronavirus outbreak will cause the US economy to contract by 24% in the second quarter of 2020, according to Goldman Sachs’ latest predictions, as the government prepares a $2trn stimulus package.

 

Economists from the investment bank expect declining consumption and investment, while ‘social distancing’ measures have already led to a huge economic upheaval, the bank said.

“Over the past few days social distancing measures have shut down normal life in much of the US,” the bank said in an update.

“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.”

Goldman Sachs predicted quarter-on-quarter annualised growth rates of -6% in Q1 and -24% in Q2, with recoveries of 12% and 10% in the last two quarters of the year, leaving full-year growth at -3.1%.

The emergency stimulus package, currently being negotiated by the senate, would include about $500bn of direct payments to citizens - two waves of up to $1,200 each.

Hospitals are likely to receive at least $75bn, although Democratic Party opposition senators want that number increased, alongside the introduction of some money to go to regional governments.

And according to reports, $250bn will be put into unemployment insurance, after a surge of job losses.

There are also expected to be hundreds of billions of dollars set aside for loans to small businesses and for liquidity assistance for specific industries such as airlines.

Last week, ratings agency Standard & Poor’s suggested that the global economy is already in a recession due to the coronavirus, but it only predicted a 6% contraction in the second quarter.

Goldman Sachs said its projections were based on the huge number of job losses in the past few days, but that the details of the government’s stimulus package “could push the unemployment rate in either direction”.

Did you enjoy this article?

Related articles

Have your say

Newsletter

CIPFA latest

Most popular

Related jobs

Most commented

Events & webinars