Goldman Sachs cuts 2022 US GDP forecast amid virus concerns
Firm says growth to slow to 1.5%-2% in second half of next year
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U.S. economic growth will slow sharply in 2022 as coronavirus fears keep the service sector from fully returning to pre-pandemic levels, according to Goldman Sachs Group Inc.
The New York-based investment bank says growth will slow to between 1.5% and 2% during the second half of next year.
Goldman also reduced its forecast for the third and fourth quarters of this year by one percentage point to 8.5% and 5%, respectively. However, the firm maintained its forecast for 6.6% growth this year.
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"We have long expected growth to peak in a mid-year boom fueled by vaccination and fiscal support," wrote economist Ronnie Walker. "But the subsequent deceleration now looks likely to be a bit sharper because the goods-to-services rotation is likely to be less seamless."
The recent resurgence in COVID-19 infections via the delta variant means service categories such as live entertainment venues and those connected to office-based work will take longer to recover.
Office attendance in large cities is just one-third of pre-pandemic levels, Walker wrote, noting that both workers and employers say work-from-home will be more prevalent than before the lockdowns.
"Workers who commute to an office, for example, might consume transportation services to and from the office, restaurant meals during lunch, work appropriate apparel and dry cleaning services, and other goods and services they pass during their time away from home," Walker said.
Remote workers also need to work, but those who make their own meals and wear casual clothing contribute less to economic activity.
A slowdown in growth will also result in a longer recovery in the labor market.
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Goldman raised its 2021 year-end employment rate forecast to 4.6%, from 4.4%.
"We expect to learn considerably more about the prospects for the labor market recovery from the July employment report which should provide a test of the impact of seasonal adjustment irregularities and the early expiration of federal employment benefits in some states," Walker said.