Goldman Sachs sees a prosperous 2021 but is cautious about the bumpy road the U.S. economy will ride before it gets there.
In a forecast that is well above Wall Street consensus, the bank’s economists see gross domestic product accelerating at a 5.3% pace next year, considerably stronger than the 4% median forecast from the Federal Reserve.
However, the firm sees a number of obstacles along the way, particularly the damage that quickly accelerating coronavirus cases will have on the recovery.
“The pace of recovery is likely to get worse before it gets better,” Goldman economist David Mericle wrote in a report. “Fiscal support has largely dried up for now, leaving disposable income lower in the final months of the year. But the largest risk is that the third wave of the coronavirus is likely to worsen with colder temperatures.”
Should the vaccine be approved early in 2021, the most at-risk parts of the population would get inoculations first. Once that process begins, the economic healing can accelerate, Mericle wrote.
“But the path is likely to be bumpy as virus resurgence puts the brakes on the recovery this winter before the vaccine effect triggers reacceleration next spring,” he said.
Unemployment to plunge
As the year progresses, Goldman forecasts hiring to accelerate, with the current 6.9% unemployment rate to fall to 5.3% by the end of the year.
That’s contingent on the likelihood of some type of additional fiscal stimulus from Congress – likely around $1 trillion under the expected divided government scenario and $2.5 trillion should the Democrats unexpectedly win contested Georgia elections and take over both the House and the Senate.
“The economy is likely to reaccelerate next spring as mass immunization fully reopens the high-contact consumer services that account for most of the remaining output gap,” Mericle said. “This should fuel a mid-year consumption boom as restored opportunities to spend allow households to substantially lower their saving rates and spend accumulated excess savings.”
The Goldman analysis notes that consumer spending already has recovered to 98% of its pre-pandemic level, while business bankruptcies have been less thanks to government support programs. Housing also is expected to continue its recovery though durable goods consumption could slow.
Goldman does not expect the rebound in activity to trigger Federal Reserve action.
With the central bank’s commitment not to raise rates until inflation is consistently above 2%, Goldman sees no increases until early 2025. From there, it expects raises of 50 basis points per year until the benchmark short-term borrowing rate hits around 2%-2.5% from its current anchor near zero.
Reference: CNBC
Thai
Eng