Goldman Sachs economists made a significant cut to their U.S. growth forecasts for 2022. The lowered projection comes after Sen. Joe Manchin said he could not support President Joe Biden’s $1.7 trillion Build Back Better spending bill.
The failure to pass the bill, and its unlikely future success, prompted economists at Goldman Sachs to say it has “negative growth implications.”
Economists now expect gross domestic product growth to be 2% in the first quarter of 2022, down from a previous forecast of 3%. They see 3% growth in the second quarter, down from 3.5%, and their third-quarter forecast was lowered to 2.75% from 3%.
“We had already expected a negative fiscal impulse in 2022 as a result of the fading support from Covid-relief legislation enacted in 2020 and 2021, and without Build Back Better enactment, this fiscal impulse will become somewhat more negative than expected. Build Back Better enactment had already looked like a close call and in light of Manchin’s comments we are adjusting our forecast to remove the assumption that [it] will become law,” chief economist Jan Hatzius said Sunday.
However, they noted there is “still a good chance that Congress enacts a much smaller set of fiscal proposals dealing with manufacturing incentives and supply-chain issues.”
The ripple effect of the lowered forecast was nearly immediate and has continued to show its impact on the world’s economy as of Monday morning.
S&P and Nasdaq futures fell 1.3%, pointing to a lower Wall Street open, following the cut and Manchin’s choice to end support for the President’s BBB act.
European and U.K. stocks (STOXX) hit two-week lows, dropping 1.9% and 1.8%, respectively.
MSCI’s index of Asia-Pacific shares (MIAPJ0000PUS) fell 1.8% to its lowest in a year, and the world stocks index (MIWD00000PUS) hit a two-week low.
Emerging market stocks (MSCIEF) also hit a one-year low.
Chinese blue chips still fell 1.5% (CSI300), while Japan’s Nikkei (N225) dropped 2.1%.
Oil prices had already dropped due to concerns that the spread of the Omicron variant would crimp demand for fuel.
Brent fell 3.2% to $71.16 a barrel, while U.S. crude dropped 3.6% to $68.30 per barrel.
The impact of the cut projections and the failing Build Back Better bill in Washington will continue to show its effects as the week begins.
