Goldman lowers GDP forecast for Q2 to just above water

On Wednesday, May 19, 2010, a Goldman Sachs Group Inc. logo hangs on the floor of the New York Stock Exchange in New York, USA.

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Amid heightened concerns that a recession is imminent, Goldman Sachs economists expect the US economy to barely grow in the second quarter.

The Wall Street firm’s forecasters on Thursday lowered their outlook for gross domestic product for the April-June period to an annualized gain of just 0.7%, down from earlier expectations of an increase of 1. 9%.

Combined with the 1.6% decline in the first quarter, that would bring the first half to the brink of a recession, generally defined as two consecutive quarterly declines in GDP.

Goldman’s adjustment follows a Thursday morning report showing the U.S. trade deficit fell to $85.5 billion in May, its lowest level of 2022, but deeper than the Dow Jones estimate of $84.7 billion. The number was impacted by a $2.8 billion drop in the deficit with China as the country struggled with lockdowns triggered by a Covid wave.

“The details of the May trade report were weaker than our previous assumptions, and we now expect real goods imports to remain high through June,” Goldman said in a customer note.

The GDP adjustment comes amid bleak outlook for the economy and some expectations that even a superficial recession has already begun.

In a related adjustment, the Atlanta Federal Reserve updated its GDPNow tracker Thursday morning to show a projected 1.9% decline in the second quarter. However, that was a slight improvement from July 1, when the meter indicated a 2.1% decline.

Fed officials have expressed optimism that the economy can evade a recession, despite tightening policies aimed at controlling runaway inflation. The central bank has raised benchmark interest rates by 1.5 percentage points this year and expects to continue with a “restrictive” interest rate to curb growth.

Wells Fargo economists said they expect the Federal Reserve’s more aggressive rate-cutting policy to ramp up the timeline for a “moderate” recession that they see beginning soon and lasting through mid-2023.

“Our outlook through 2023 has evolved based on how strong labor markets and abundant cash support crumble under sustained inflation and [the Fed’s] increasingly aggressive policy response,” the company wrote. Whether inflation peaks this summer or fall is of less importance to us than the endurance of inflation, regardless of when it peaks. Erosion is accelerating and the path to recession appears to have sharpened the trajectory for the US and, moments later, for the eurozone.”

According to new forecasts from Wells Fargo, GDP will fall by 0.2% in 2022 and rise by 0.9% in 2023. The previous respective forecasts were for a gain of 1.5% and a decline of 0.5%

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