ICYMI: GOLDMAN SACHS: U.S. ECONOMY WILL GROW 8% THIS YEAR FOLLOWING PASSAGE OF AMERICAN RESCUE PLAN

Axios: “If Goldman’s forecast is correct, it would mark the largest economic expansion for the U.S. in generations.”

In response to the passage of the overwhelmingly popular public investments in the American Rescue Plan, economic experts with Goldman Sachs have raised their GDP growth expectations for the U.S. economy to 8% for 2021, a feat that hasn’t been achieved since 1951.

Axios: Goldman Sachs predicts U.S. economy will grow 8% this year

“Economists at Goldman Sachs raised their GDP growth expectations for the U.S. economy to 8% for 2021 in a note to clients on Sunday night.

Why it matters: If Goldman’s forecast is correct, it would mark the largest economic expansion for the U.S. in generations.

  • Not only would 8% annual growth denote a stupendous turnaround from the coronavirus pandemic, it would significantly outpace the firm’s growth expectations for the U.S. from as recently as late 2020.

What they’re saying: “We have raised our GDP forecast to reflect the latest fiscal policy news and now expect 8% growth in 2021 (Q4/Q4) and an unemployment rate of 4% at end-2021 — the lowest among consensus forecasts—that falls to 3.5% in 2022 and 3.2% in 2023,” Goldman said in the note.

  • “But we expect inflation dynamics to mirror those last cycle, and therefore expect this forecast to translate to only 2.1% core PCE inflation in 2023.”

Between the lines: Goldman has been exceptionally bullish on the prospects for U.S. growth all year, far outpacing most other Wall Street banks’ expectations.

  • The average growth expectation among Wall Street analysts is 4.7%, according to FactSet, and was 3.9% as recently as November.

  • Further, economic growth of 8% with inflation reaching just 2.1% would be almost unprecedented.

By the numbers: A growth of 8% this year would put U.S. GDP at around $22.6 trillion, marking a full recovery after the economy shrank 4.1% in 2020.

  • U.S. GDP hasn’t grown 8% in a year since 1951, when it totaled $356 billion.

Of note: Goldman’s metric tracks fourth quarter over fourth quarter growth, rather than year over year.”

Economists and macroeconomic experts agree that the public investment in President Biden’s American Rescue Plan will boost economic growth. 

  • Economists surveyed by the Wall Street Journal say that the American Rescue Plan will help boost economic growth to 5.95%. That bump would be the U.S. economy’s fastest since 1983. 

  • The Organization for Economic Cooperation and Development (OECD) estimates that the American Rescue Plan will grow the U.S. economy by nearly 4% in 2021, lift global output by 5.6%, and add more than a percentage point to global growth.

  • S&P Global estimates that the legislation will bring U.S. GDP back to pre-crisis levels by second-quarter 2021.

  • Brookings says the American Rescue Plan would boost GDP by about 4% at the end of 2021 and 2 percent at the end of 2022. 

  • Moody’s Analytics projects that the $1.9 trillion package will bring real GDP growth to nearly 8% this year and almost 4% next year, bringing the economy back almost to full employment by fall 2022.”

  • International Monetary Fund estimates that the American Rescue Plan could boost U.S. economic output by 5% over the next three years.

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