Daily Times

The rising delta variant risk will hurt the US economic growth in the third quarter, said Goldman Sachs as it downgraded its Q3 GDP forecast.

Goldman Sachs cut its Q3 GDP (gross domestic product) outlook from nine percent to 5.5 percent, chief economist Jan Hatzius said in a note, stressing that slower growth will be only temporary.

“Spending on dining, travel, and some other services is likely to decline in August, though we expect the drop to be modest and brief. Production is still suffering from supply chain disruptions, especially in the auto industry, and this is likely to mean less inventory rebuilding in Q3,” the note stated. The quickly spreading delta variant is leading to some risk-off sentiment in the marketplace, with the US recording more than 1,000 Covid-19 deaths on Tuesday. Australia’s two most populous states also reported the highest number of cases since the pandemic began on Thursday.

However, Goldman sees this delta-triggered spike in cases coming down and growth picking up into next year. “Lower growth in Q3 should imply stronger growth in Q4 and 2022 as virus fears hopefully diminish and the service sector recovery and inventory rebuild resume, and we have raised our forecasts beyond this quarter,” the note added.

According to the updated forecast, Goldman estimates growth to come in at 6 percent and 4.5 percent in 2021 and 2022, respectively. Inflation is also at risk here, with the slowdown in growth once again triggering higher prices due to supply-chain bottlenecks. “We now see further short-term upside for new cars, consumer electronics, and appliances, and have therefore bumped up our core PCE inflation forecast to 3.75 percent year-on-year at end-2021,” the note said. “As prices of these goods and used cars fall next year, we expect core PCE inflation to dip below 2 percent next summer and to end 2022 at 2 percent.”