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Goldman Sachs Predicts U.S. GDP to Shrink 5% in Second Quarter

Jeff Kearns
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Goldman Sachs Predicts U.S. GDP to Shrink 5% in Second Quarter

(Bloomberg) -- The U.S. economy will contract sharply in late March and April as consumers and businesses slash spending, with the short downturn likely be officially deemed as being a recession, according to Goldman Sachs Group Inc.

The world’s largest economy will shrink 5% in the second quarter after zero gross domestic product growth in the first three months of the year, the firm’s economists wrote in a note Sunday. They cut their full-year forecast to 0.4% growth from 1.2% on expectations for growth of 3% and 4% in the third and fourth quarters and strong gains in early 2021.

“The uncertainty around all of these numbers is much greater than normal,” the Goldman economists wrote. Consumers and businesses will continue to cut travel, entertainment, and restaurant spending, while supply chain disruptions and tightening in financial conditions will further dent growth, they said.

Goldman’s projections followed U.S. Treasury Secretary Steven Mnuchin saying earlier Sunday that the coronavirus pandemic probably won’t tip the U.S. into recession, and came before the Federal Reserve cut rates to near zero.

Read more: Mnuchin Wants More Emergency Tools But Doesn’t See Recession

The National Bureau of Economic Research’s Business Cycle Dating Committee, a panel whose determinations of when U.S. expansions begin and end are accepted as official, would probably classify such a sharp contraction as a recession even though it involves only one quarter of contraction, the economists said. They added that the group has previously said just a few months of contraction can meet its definition if it’s deep enough.

Read more: Tips for Spotting a U.S. Recession Before It Becomes Official

Meanwhile, growth is forecast to nearly halt in the second quarter and recession odds have jumped, Bloomberg’s March 6-12 survey of economists shows. Growth was seen slumping to a 0.1% annualized pace in the April-June period, while the economy now faces a 45% chance of a recession over the next 12 months -- the greatest odds since February 2009, when the economy was still in the midst of the last recession.

To contact the reporter on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Alister Bull, James Mayger

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