Goldman Sachs Economists Now Anticipate Slower Growth After Giving Up on Coronavirus Stimulus


With coronavirus lockdowns still active in some parts of the country, it’s not surprising that economic growth has been slow, and the U.S. has officially fallen into a recession.

There have been signs of good news going forward, though, with leading economists and business leaders predicting an impending, albeit fragile, recovery. However, economists from Goldman Sachs Group Inc. are taking a far less rosy view on future economic growth for one simple reason: They’ve given up on Washington lawmakers passing more coronavirus relief legislation this year.

The absence of additional aid for struggling Americans is expected to have a profound impact on the country’s economic prospects.

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Economists and business leaders warn that lack of coronavirus stimulus will have consequences

For the fourth quarter of 2020, Goldman Sachs economists predicted 6% growth on a quarterly annualized basis. However, this projection was based on an assumption that Congress would provide at least an additional $1 trillion in coronavirus relief to boost economic recovery.

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The expectation that Washington would provide more aid has so far proved overly optimistic, so Goldman economists have revised their forecast, expecting that no further help is on the way.

“It is now clear that Congress will not attach additional fiscal stimulus to the continuing resolution,” they said in a report delivered this week. “This implies that after a final round of extra unemployment benefits that is currently being disbursed, any further fiscal support will likely have to wait until 2021.”

With no further financial support on the way, the Goldman economists now warn that Americans will experience a major decline in disposable income, with their spending power falling to pre-pandemic levels. When people have less to spend, this reduces demand and slows economic growth.

Their revised prediction is that in the fourth quarter, the U.S. gross domestic product will grow just 3% on an annualized basis. In other words, growth will be halved, and economic recovery will be much slower.

Goldman’s report does indicate belief that further fiscal support will arrive in 2021, and offers a prediction of 5.8% growth next year. But next year’s outcomes will likely hinge on what happens in the November election.

This report is not the first warning highlighting the damage an absence of stimulus funds could have on the country’s fragile economic recovery. The Business Roundtable, a nonprofit group counting some of America’s top CEOs as members, also sounded the alarm that economic conditions could worsen if politicians don’t find consensus on a new coronavirus relief bill.

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Sadly, these warnings — along with the pleas of moderate lawmakers to act — seem unlikely to break a months-long stalemate that has prevented passage of any further COVID-19 stimulus legislation. Lawmakers are far apart on what to include in another bill, and many are consumed with seeking reelection or focused on the fight over confirming a new Supreme Court justice to fill the seat of the late Ruth Bader Ginsburg.

As leading economists and industry leaders warn, it is consumers who will feel the pain that comes from the absence of stimulus funds. If you are one of the millions hoping for more relief from Washington, it’s important to act now — most signs point to the likelihood that it’s not coming.

While there are other sources of state and federal aid available, it’s smart to secure your own financial situation however you’re able, and if you can, increase the amount you’re putting in the bank for emergencies. Other forms of aid, or temporary solutions like a personal loan or a mortgage refinance loan are not a total replacement for more fiscal relief from Washington, D.C., but perhaps — as Goldman Sachs economists hope — this relief will come in 2021.


View more information: https://www.fool.com/the-ascent/personal-finance/articles/goldman-sachs-economists-now-anticipate-slower-growth-after-giving-up-on-coronavirus-stimulus/

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