(Reuters) - Goldman Sachs trimmed its quarterly GDP forecasts for 2022, after U.S. Senator Joe Manchin withdrew his support to U.S. President Joe Biden's $1.75 trillion domestic investment bill.
Manchin, a moderate Democrat, appeared to deal a fatal blow to Biden's Build Back Better (BBB) policy bill on Sunday, which aims to expand the social safety net and tackle climate change.
"We had already expected a negative fiscal impulse for 2022 as a result of the fading support from COVID-relief legislation enacted in 2020 and 2021, and without BBB enactment, this fiscal impulse will become somewhat more negative than we had expected," Goldmans Sachs analyst Jan Hatzius wrote in a note on Sunday.
Hatzius lowered U.S. GDP forecast for Q1 2022 to 2% from 3%, not factoring in that BBB would become a law, cut Q2 outlook to 3% from 3.5%, and Q3 forecast to 2.75% from 3%.
"While BBB in its current form looks unlikely, there is still a good chance that Congress enacts a much smaller set of fiscal proposals dealing with manufacturing incentives and supply chain issues," Hatzius said.
Goldman Sachs says there is still a chance that Congress extends the expanded child tax credit programme, which aims at providing free childcare, with some modifications, though "the odds of this occurring are less than even."
(Reporting by Siddarth S in Bengaluru; Editing by Vinay Dwivedi)