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Goldman Sachs slashes Q3 GDP outlook, cites greater delta variant risk

Kitco News

(Kitco News) The rising delta variant risk will hurt the U.S. economic growth in the third quarter, said Goldman Sachs as it downgraded its Q3 GDP forecast.

Goldman Sachs cut its Q3 GDP outlook from 9% to 5.5%, chief economist Jan Hatzius said in a note, stressing that slower growth will be only temporary.

“Spending on dining, travel, and some other services is likely to decline in August, though we expect the drop to be modest and brief. Production is still suffering from supply chain disruptions, especially in the auto industry, and this is likely to mean less inventory rebuild in Q3,” the note stated.

The quickly spreading delta variant is leading to some risk-off sentiment in the marketplace, with the U.S. recording more than 1,000 COVID-19 deaths on Tuesday. Australia’s two most populous states also reported the highest number of cases since the pandemic began on Thursday.

However, Goldman sees this delta-triggered spike in cases coming down and growth picking up into next year.

“Lower growth in Q3 should imply stronger growth in Q4 and 2022 as virus fears hopefully diminish and the service sector recovery and inventory rebuild resume, and we have raised our forecasts beyond this quarter,” the note added.

According to the updated forecast, Goldman estimates growth to come in at 6% and 4.5% in 2021 and 2022, respectively.

Inflation is also at risk here, with the slowdown in growth once again triggering higher prices due to supply-chain bottlenecks.

“We now see further short-term upside for new cars, consumer electronics, and appliances, and have therefore bumped up our core PCE inflation forecast to 3.75% year-on-year at end-2021,” the note said. “As prices of these goods and used cars fall next year, we expect core PCE inflation to dip below 2% next summer and to end 2022 at 2%.”

When it comes to gold, Goldman Sachs still expects to see the precious metal reaching $2,000 an ounce by the end of the year as demand for the yellow metal recovers.

In their latest research note, Goldman said that its forecast sees gold at “$2,000/oz in 3, 6 and 12-month horizons.” 

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