Goldman Sachs says its gloomy prediction of 24% U.S. GDP contraction in Q2 wasn’t nearly grim enough

Goldman Sachs Group Inc. expects the U.S. economy to experience a far deeper slump than previously anticipated as the coronavirus pandemic hammers businesses, causing a wave of mass unemployment.

The world’s largest economy will shrink an annualized 34% in the second quarter, compared with an earlier estimate of 24%, economists led by Jan Hatzius wrote in a report. Unemployment will soar to 15% by mid-year, up from a previous forecast of 9%, they wrote.

The economists, however, now expect a stronger recovery in the third quarter, with gross domestic product expanding 19%.

“Our estimates imply that a bit more than half of the near-term output decline is made up by year-end,” they wrote. While there’s a risk of longer-term fallout on income and spending, the aggressive action by the Federal Reserve and the government should help to contain this.

The new forecasts come days after President Donald Trump extended U.S. “social distancing” guidelines to contain the virus until the of April, abandoning a plan for an earlier end.

Several major U.S. retailers are halting pay for hundreds of thousands of workers as they struggle to cope with the slump in demand caused by measures to control the spread of the pandemic. The White House and congressional Democrats are preparing for a fourth round of economic stimulus to get the U.S. through the outbreak.

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