Goldman Sachs downgrades US growth forecast for Q1, Q2 due to coronavirus

Goldman Sachs Group Inc has downgraded its US growth forecast for the first and second quarters in the wake of the economic fallout from the coronavirus outbreak.

In a note sent on Sunday, the US bank said it now sees real gross domestic product growth of 0% in the first three months of the year, from its original estimate of 0.7% expansion. For the second quarter, it sees US growth contracting to -0.5% from its initial forecast of 0%.

Goldman raised its third-quarter US GDP estimate to 3% from 1% originally.

"We expect US economic activity to contract sharply in the remainder of March and throughout April as virus fears lead consumers and businesses to continue to cut back on spending such as travel, entertainment, and restaurant meals," Goldman said in its latest research note.

Apart from the impact on consumer spending, Goldman said it also revised its growth forecasts as significant supply chain disruptions have grown.

That said, the US bank expects economic activity to recover after April, with strong growth in the second half.

But that expectation, Goldman pointed out, depends on certain factors, such as the extent to which social distancing, or avoiding crowds or gatherings, as well as seasonally higher temperatures will reduce infections as well as whether good treatments will emerge.

Goldman therefore expects higher growth for the fourth quarter of 4%, from its initial estimate of 2.25%, and sees further strong gains in early 2021.

Overall its GDP forecast for 2020 was down to 0.4% from 1.2% originally.

"The uncertainty around all of these numbers is much greater than normal," the bank said.