Coronavirus to be bigger drag on US economy than previously thought: Goldman Sachs

The firm sees the coronavirus having a 0.8 percentage point drag on first-quarter growth

Goldman Sachs is warning the coronavirus outbreak will have a bigger impact on the U.S. economy than previously thought.

Economists at the New York-based investment bank now see the coronavirus acting as a 0.8 percentage point drag on annualized economic growth in the first quarter before seeing a snap back over the final three quarters of the year. They had previously anticipated the coronavirus would cause a 0.5-0.6 percentage point hit to U.S. growth.

Goldman’s economic research team now sees the U.S. economic growth slowing to a 1.2 percent annualized rate in the first quarter, down from 2.1 percent in the October-to-December period.

“Despite a negligible hit to aggregate US activity from supply chain production disruptions under our baseline scenario, we have nevertheless increased our estimated growth drag from the coronavirus given the slower than expected pickup in Chinese activity and travel,” wrote Jan Hatzius, chief economist at Goldman Sachs.


The coronavirus outbreak, which originated in Wuhan, China, has led to the lockdown of more than 60 million people in the country, paralyzing supply chains and zapping demand.

Economists at Goldman, who expect a sharp reduction in the rate of new infections to occur by the end of the first quarter and for China’s factories to return to normal levels of production in April or May, say the coronavirus will impact U.S. growth in four different ways.

Goldman expects reduced demand for U.S. products due to fewer exports to China and lower spending by Chinese tourists and students. Chinese consumers account for 0.4 percentage point of global gross domestic product and 33 percent of spending in the global luxury market


The firm also sees a decline in U.S. retailers’ services value added due to lower U.S. consumption of Chinese goods and supply chain disruptions to cause a drop in U.S. production.

After seeing a 0.8 percentage point drag in the first quarter, Goldman’s economists see the U.S. economy having boosts of 0.3 percentage points, 0.3 to 0.4 percentage points and 0.1 percentage point in the remaining three quarters of the year.

Economists at J.P. Morgan agree that the coronavirus will cause U.S. growth to slow in the first quarter before bouncing back over the remainder of the year. They see U.S. economic growth slowing to 1 percent in the first quarter before expanding at 1.8 percent, 1.5 percent and 1.8 percent in the second, third and fourth quarters.


“We flag the risk of further downward revisions given significant uncertainty around the economic impact of the coronavirus shock,” wrote Bruce Kasman, managing director and head of economic research at J.P. Morgan.