Goldman Sachs Sees (Even) Worse Recession, Higher Unemployment

The company revises its forecast downward again.


More bad news: Goldman Sachs issued another downward revision to its economic forecast this morning. The firm says the revision is a response to tightening financial conditions, which it blames on policy impasses in Washington.

We have marked down our forecasts for US real GDP in response to continuing signs of falling domestic and foreign demand, labor market deterioration, renewed tightening in financial conditions, and an apparent impasse in fiscal policy pending the transfer of power to the Obama administration in late January. As a result, we expect the unemployment rate to reach 9% by the fourth quarter of 2009, profits to fall 25% for 2009 as a whole following an estimated 10% drop this year, and the Federal Open Market Committee (FOMC) to use nontraditional policy tools more aggressively, as detailed below…

We now estimate that real GDP is falling at a 5% annual rate in the current quarter, and we expect this to be followed by declines of 3% and 1% in the next two quarters. This deepens and extends the expected recession, bringing the drop in GDP close to the decline seen in 1982 (2.3% in our forecast versus 2.7% then). Previously we had estimated changes of -3.5%, -2%, and zero, respectively. In the second half of 2009, we expect growth to average 1%, only slightly less than before.

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