Goldman Sachs Group Inc. logo. hangs on the floor of the New York Stock Exchange in New York, U.S., on Wednesday, May 19, 2010.
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Amid heightened fears that a recession is looming, Goldman Sachs economists expect the US economy to grow only slightly in the second quarter.
Wall Street firm forecasters on Thursday cut their outlook for gross domestic product in the April-June period to an annual increase of just 0.7 percent, less than the previous expectation of a 1.9 percent increase.
Combined with the 1.6% decline in the first quarter, that would bring the first half of the year to the brink of a recession, which is usually defined as two consecutive quarterly declines in GDP.
Goldman’s correction follows a report on Thursday morning showing the US trade deficit narrowed in May to $85.5 billion, the lowest level for 2022 but deeper than the Dow Jones estimate of $84.7 billion dollar. The number was influenced by a $2.8 billion reduction in the deficit with China as the nation grappled with a lockdown caused by the Covid surge.
“Details from the May trade report were weaker than our previous estimates, and we now expect real goods imports to remain high in June,” Goldman said in a client note.
The GDP correction comes amid a gloomy outlook for the economy and some expectations that a shallow recession may even have already occurred.
In a related correction, the Atlanta Federal Reserve updated its GDPNow tracker on Thursday morning to show an expected 1.9% decline in the second quarter, but that was a slight improvement from July 1, when the gauge indicated a 2.1% decline.
Fed officials expressed optimism that the economy can overcome a recession despite tighter policies aimed at controlling rampant inflation. The central bank has raised benchmark lending rates by 1.5 percentage points this year and expects to continue moving toward a “cap” rate aimed at curbing growth.
Economists at Wells Fargo said they expect the Federal Reserve’s more aggressive rate-cutting policy to accelerate the timetable for a “moderate” recession that they say will begin soon and last through mid-2023.
“Our outlook to 2023 has evolved based on how a strong labor market and ample monetary support erodes under sustained inflation and [the Fed’s] an increasingly aggressive policy response,” the firm wrote. “Whether inflation peaks this summer or fall is less important in our view than the durability of inflation, no matter when it peaks. The erosion is accelerating and the path to recession appears to have sharpened its trajectory for the US and a little later for the Eurozone.”
Wells Fargo’s new forecasts call for GDP to fall 0.2% in 2022 and grow 0.9% in 2023. The previous corresponding forecasts were for a 1.5% gain and a 0.5% decline