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Goldman Sees Advanced Economies Shrinking 35% Amid Pandemic

Goldman Sees Advanced Economies Shrinking 35% Amid Pandemic

(Bloomberg) — Advanced economies will shrink about 35% this quarter from the prior three months, four times as much as the previous record set in 2008 during the financial crisis, according to annualized figures from Goldman Sachs Group Inc.

How fast economies will rebound is an open question because nobody knows how quickly people can get back to work, New York-based economist Jan Hatzius wrote in a note to clients dated April 13.

The number of new virus cases appears to be peaking globally, but the bad news is that “the improvement is probably a direct consequence of social distancing and the plunge in economic activity, and could reverse quickly if people just went back to work,” Hatzius wrote.

Overall, global policy makers have mounted an impressive response to try to replace people’s incomes and keep credit flowing so that households and businesses can stay afloat, but Europe should do more and wealthy countries will need to help developing economies, he wrote.

“The response in Europe needs to be scaled up, via greater (and ideally centrally funded) fiscal easing and a more unconditional ‘whatever it takes’ commitment to the integrity of the euro area,” Hatzius wrote. “Emerging economies will need a lot more help from the rich world” to get through the crisis.

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