Goldman Sachs Lists Three Things That “Could Go Wrong” in 2021

(Noted News) — Banking giant Goldman Sachs is overall optimistic about a bounce-back recovery for the US in 2021, but nonetheless listed a few potential threats to the wellbeing of the economy. 

In a note written by Jan Hatzius, Goldman’s chief economist, the biggest and most severe downside risk mentioned is the possibility of a vaccine-resistant strain of coronavirus putting the country back into lockdown mode and having to spend more money on a new vaccine and a new vaccination program. This would, according to Goldman, delay a “consumption boom” by another year. 

“Virus-sensitive spending would likely retrench while a new vaccine is developed, and although a new vaccine could be approved in less than five months, the consumption boom would likely be delayed until 2022,” Goldman’s analysts said. 

“The risk that a vaccine-resistant virus strain emerges have risen recently, since higher case counts and more infectious strains increase opportunities for efficacy-lowering mutations to occur. Nevertheless, most viruses (with the seasonal flu as a notable exception) do not mutate in a manner that regularly renders vaccines ineffective, and so we do not incorporate such a mutation in our baseline forecast.”

The second most concerning risk according to Golman is also related to a mutation of the coronavirus; if a mutation appears that prevents herd immunity from ever becoming effective. This would also delay the consumption boom by prolonging the process of immunity. 

The third risk which is supposed to be the least concerning is that consumers are “overly cautious…even as mass vaccination and warmer weather greatly reduce virus spread and the risk of infection.”

“While our baseline already incorporates some amount of lingering risk aversion, it is possible that demand for virus-sensitive activities remains well below pre-virus trend levels, particularly for the higher-risk population. While this could restrain the consumption boom, consumer surveys and the resiliency of the consumer thus far suggest such downside is likely limited. Surveys indicate that mass vaccination will significantly increase consumers’ willingness to resume virus-sensitive activities, and the experience of other countries that have more effectively controlled the virus also shows that virus-sensitive services can quickly normalize once infections decline.” 

Goldman says that despite the explosion in new COVID-19 cases over the winter, consumer spending has dipped much less than expected. They are mostly concerned about spending from elderly people who might be more cautious of going out and doing things due to being more vulnerable than others. They forecast slow slower spending with these groups a faster recovery with the younger demographics.

“Additionally, our recovery tracker shows that consumer spending has retrenched only slightly despite very bad virus spread over the winter months. To estimate the possible downside from greater consumer caution, we focus on consumer spending of older individuals who are at greater risk from the virus. Based on Consumer Expenditure Survey data, we estimate that spending by individuals above the age of 65 on virus-sensitive activities accounts for 3% of total consumer spending.”

Should the American economy avoid or minimize these scenarios, Goldman is forecasting a GDP growth of 6.6% this year or about 2.5% more than the consensus. And despite the risks, the investment banking behemoth is still expecting the virus to become less of a risk due to the vaccination programs and stimulus packages, hopefully sparking a “mid-year consumption boom” for strong growth in 2021.

Supporting Goldman’s hopes for a bounce-back in 2021, the US’ leading infectious disease expert Anthony Fauci said in January that COVID-19 cases could have already hit their peak, and that the vaccines so far are sufficiently effective. 

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