Goldman Sachs Raises US Economic Growth Forecast for Next Year

Expectations for Increased Consumption Due to COVID-19 Vaccine Development
US Fiscal Deficit Reaches $2.8 Trillion Amid Economic Stimulus Policies

[Image source=EPA Yonhap News]

[Asia Economy New York=Special Correspondent Baek Jong-min] The American investment bank Goldman Sachs has revised upward its forecast for the U.S. economic growth rate next year. This appears to take into account the fact that the release of a COVID-19 vaccine is within sight. In a report released on the 10th (local time), Goldman Sachs raised its forecast for the U.S. GDP growth rate in 2021 from 5.6% to 6.2%. Goldman Sachs's forecast for the U.S. economic growth rate this year is -4.6%.

Goldman Sachs also lowered its unemployment rate forecast for the end of next year from 7% to 6.5%, considering the recent increase in jobs in the labor market. The unemployment rate forecast for the end of this year remains at 9%. Last month, Goldman Sachs revised its forecast for the U.S. unemployment rate this year down from 9.5% by 0.5 percentage points to 9%. The current U.S. unemployment rate is 10.2%.

The basis for Goldman Sachs's outlook is the imminent release of a vaccine. Goldman Sachs expects that at least one vaccine will be developed within this year and will be widely distributed by the second quarter of next year. Once the vaccine is widely distributed, consumption will recover, and the speed of the U.S. economic recovery will accelerate.

According to foreign media, pharmaceutical companies in the U.S., the U.K., China, and other countries are entering the final stages of vaccine development one after another. Clinical trials by Oxford University and AstraZeneca in the U.K. have entered the final phase, and Moderna has also started Phase 3. The Wuhan Institute of Virology, Sinopharm, and Beijing Institute in China are also conducting Phase 3 trials.

Joseph Briggs, an economist at Goldman Sachs, said, "We expect at least one vaccine to be approved by the end of 2020 and generally available by the second quarter of 2021." This reaffirmed the view that only vaccines can resolve the contraction in economic activity.

Last week, Goldman Sachs also argued that the market is undervaluing the possibility that a COVID-19 vaccine will be developed and used in the U.S. within this year, and that the S&P 500 index has the potential to rise by about 11% from the current level.

However, Goldman Sachs pointed out that the recent stagnation of additional stimulus bills in the U.S. political arena could threaten future economic recovery and judged that a $1.5 trillion measure should be introduced within this month.

In this regard, the U.S. Congressional Budget Office (CBO) announced on the same day that the fiscal deficit for the 10 months of the 2020 fiscal year (October 2019 to July 2020) was $2.8 trillion. This is an increase of $1.9 trillion compared to the same period last year. Although interest costs decreased due to the Federal Reserve's introduction of zero interest rates, stimulus spending increased significantly.

The CBO had expected the U.S. fiscal deficit this year to reach $3.7 trillion, but the possibility of expansion is high. This is because additional expansion of spending for economic stimulus is inevitable. The U.S. government and the Democratic Party are seeking a deal on an additional stimulus bill, with the Republican Party proposing spending of $1 trillion. If the payroll tax exemption promoted by President Donald Trump is also reflected, the fiscal deficit could expand further.