Goldman Cuts GDP Outlook on Delta’s Economic Impact

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That’s how much Goldman Sachs shaved off its third-quarter growth forecast, due to what it called a greater-than-expected economic impact of the delta variant of the coronavirus.

Goldman Sachs on Wednesday cut its forecast for third-quarter gross domestic product (GDP) to 5.5% from 9%, citing the double-whammy effect the variant is likely to have on both consumer spending and production.

“The impact of the Delta variant on growth and inflation is proving to be somewhat larger than we expected,” David Mericle, Goldman Sachs economist, wrote in a research report.

On the spending side, the investment bank predicts that consumers—who fueled a reopened economy earlier this year with savings built up while they sheltered in place last year—will modestly pull back on dining, travel and other services in August. Production also is expected to suffer from ongoing supply-chain disruptions, particularly in the auto industry, as Asia-Pacific countries reimpose COVID-19-related restrictions. Those supply-chain issues are also expected to further boost inflation in the near-term.

The good news is that Goldman expects the slowdown in growth to be short-lived, and that GDP will rebound in the year’s final quarter. It raised its fourth-quarter growth outlook to 6.5% from 5.5%.

“We do not expect the current pullback to last long because our best guess, based largely on the experiences of some European countries, is that US virus cases will start falling in the first half of September,” Mericle said. “We expect consumer spending to bounce back that month.”

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Article Sources

  1. Bureau of Economic Analysis. "Gross Domestic Product."

  2. Bureau of Economic Analysis. “March 2021 Personal Income and Outlays Historical Comparisons.”