Medical workers prepare to intubate a patient with coronavirus disease (COVID-19) in the coronavirus disease (COVID-19) intensive care unit of the United Memorial Medical Center in Houston, Texas, USA. June 29, 2020.
Callaghan O’Hare | Reuters
The increase in coronavirus cases will limit growth in what would be a robust third-quarter rebound in the United States, according to Goldman Sachs.
Bank economists now see a third-quarter gross domestic product increase of 25% annually. That’s lower than the initial estimate of 33%, and the decrease is primarily due to concerns that rising virus cases in states like Florida, Texas and Arizona will slow the rate of reopening.
“The sharp rise in confirmed coronavirus infections in the US has raised fears that the recovery will soon stop,” Jan Hatzius, chief economist at Goldman, said in a note. “While a significant portion of the increase reflects higher volumes of evidence … a closer look at CDC’s criteria for reopening shows that not only new cases but also positive test rates, the proportion of doctor visits per Greedy-like symptoms and hospital capacity utilization has deteriorated significantly in recent weeks. “
GDP fell 5% in the first quarter, part of a largely self-induced recession meant to halt the spread of the coronavirus. It was the biggest one-quarter drop since the fourth quarter of 2008, during the Great Recession.
As cases declined, states slowly began reopening amid hopes that the sharp decline would be short-lived. In fact, even if Goldman’s reduced call is correct, that would mark, by a wide margin, the biggest quarterly bounce since at least 1947.
The United States has seen 340,000 new cases of the virus in the past week, an increase of 13.4%. That has come with 3,447 deaths, an increase of 2.9%.
Hatzius said he still sees reason to be optimistic.
Manufacturing and construction have quickly returned to expansion after suffering their worst setbacks since the financial crisis. The economy added another 4.8 million jobs in June as the unemployment rate fell to 11.1%.
In addition, he cited medical advances that, combined with renewed restrictions in the worst-affected states, could bring the virus’s reproduction rate below 1, when the outbreak is likely to be extinguished.
Political considerations also figure in: President Donald Trump’s historic reversal in corporate tax rates would likely reverse if he failed to re-elect this year. But Hatzius said that would also reduce Trump’s trade protectionism, which has rocked markets at multiple points in the past three years.
“Although tensions with China will persist regardless of the outcome of the elections, an escalation of the trade war would be less likely and the prospects for international cooperation on vital issues such as climate change would improve,” Hatzius wrote.
Still, Goldman expects US stocks to underperform their global competitors as the nation “underperforms in the short term, partly reversing its overly hasty reopening in the consumer sector.”
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