The global economy is not just experiencing a recession, but a sudden stop without precedent in postwar history, says Goldman Sachs Chief Economist Jan Hatzius. Unlike the more gradual effects of the global financial crisis, lockdowns and social distancing present a physical constraint (especially in face-to-face services) with more immediate economic consequences. Goldman Sachs Research now forecasts a sharp contraction in developed economies in Q2, including a 24% drop in US GDP—twice as large as the previous postwar record. The fiscal response also seems likely to break records as the job market fallout becomes clear, adding stimulus on top of monetary policy easing from central banks. Hatzius now forecasts a 1% contraction in global GDP on the year, and risks remain skewed to the downside.
Hatzius and his colleagues from Goldman Sachs Research hosted a conference call for clients yesterday, where they discussed the latest market, economic, and policy implications of the viral outbreak. We’ve excerpted that call in the latest episode of our Exchanges at Goldman Sachs podcast.
Goldman Sachs’ Sharmin Mossavar-Rahmani, head of the Investment Strategy Group for the Consumer and Investment Management Division, interviewed a panel of leading health experts and business leaders in a recent client call, which is now available on our Talks at GS podcast. The conclusion of the Investment Strategy Group is that there may be light at the end of the pandemic tunnel in the foreseeable future. While the US has faced challenges when it comes to coronavirus testing, that capability has been ramping up in recent weeks, the CEOs of Quest Diagnostics and Roche Diagnostics said during the call. “We’ve made dramatic progress in the testing capacity,” said Quest CEO Steve Rusckowski. “My hope is in a couple to three weeks we’ll have the capacity to meet the demand.” At the same time, leaders of pharmaceutical companies including Moderna and Regeneron were similarly hopeful that a therapeutic or vaccine to treat COVID-19 may soon be on the horizon, citing progress on clinical trials and work being done on vaccines using more innovative biotechnology. The outlook for the state of the healthcare system, however, is less bright as hospitals contend with shortages of N-95 masks, personal protective equipment and ventilators. Nevertheless, the public and private sectors are mobilizing on a rapid scale, said Peter Slavin, president of Massachusetts General Hospital. “The healthcare workforce for this crisis our country is facing, the world is facing, is similar to what we expect members of the armed services to engage in,” Slavin added. “Our workforce is energized by the challenge. I think they’re determined to defeat this enemy, save as many lives as we possibly can. But they’re also obviously fearful about their own safety [and] the safety of their families.”
Listen to the podcast on Apple Podcasts or YouTube.
In his annual letter to shareholders, Goldman Sachs’ CEO David Solomon reflects on the global health crisis that is putting extraordinary pressure on all of society: “As I write this, it is too early to know the full effect COVID-19 will have on the global economy…As a firm, we are taking actions to support our people, their families, and our clients. I am proud of how our people have reacted amidst these circumstances, demonstrating the resilience and resolve they put forth on a daily basis on behalf of our clients. Further, the work they do today is integral to bolstering and sustaining global financial markets, which are critical to the recovery ahead.” In the letter, he discusses the efforts to drive the firm’s long-term strategy forward, with a focus on operating to protect our people while serving our clients. “Helping clients navigate dynamic environments is core to what we do, and we will stand by and assist them always.”