Goldman Sachs: "If US Democratic Party's Blue Wave Materializes, Large-Scale Economic Stimulus Expected"

Joe Biden, Democratic presidential candidate of the United States
[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Goldman Sachs has forecasted that if the Democratic Party wins the upcoming U.S. presidential and Senate elections next month, securing a 'Blue wave' victory by gaining majority control of the White House and Senate following the House, a large-scale economic stimulus package is expected to be introduced.

According to CNBC on the 19th (local time), Jan Hatzius, Chief Economist at Goldman Sachs, stated in an investor memo that if the Democrats achieve a landslide victory in the November elections, additional COVID-19 relief measures and increased infrastructure spending could be implemented, along with a possible minimum wage hike.

Hatzius said, "If the Democrats sweep the Senate, House, and White House, fiscal spending will increase significantly," adding, "In addition to the stimulus package in the first quarter of next year, legislation related to infrastructure and climate is also expected." He also anticipated that under this scenario, welfare expansion bills including healthcare, based on tax increases, would pass around the third quarter of next year.

Goldman Sachs particularly noted that although Democratic presidential candidate Joe Biden has proposed tax increases, the economic growth effects from the stimulus package would more than offset these. According to the Tax Policy Center, federal government revenue is projected to increase by approximately $2.4 trillion over the next decade under Biden's proposals.

Hatzius expects that if the Blue wave materializes, at least three bills related to stimulus measures could be passed. He projected that $2.5 trillion would be spent next year as an additional relief package to overcome the COVID-19 crisis, and that infrastructure and climate-related legislation as well as welfare bills including healthcare would be enacted.

Goldman Sachs estimates that if the Blue wave occurs in this election, the GDP growth rate could increase by 2 to 3 percentage points due to additional stimulus measures. Goldman Sachs' recent forecast for U.S. economic growth rates is -3.5% for this year and 5.8% for next year.