Goldman sees a powerful financial system in 2021, however it can "worsen earlier than it will get higher".
Traders work at the Goldman Sachs booth on the floor of the New York Stock Exchange in New York.
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Goldman Sachs sees a prosperous 2021, but is wary of the bumpy road the U.S. economy will ride before getting there.
In a forecast well above the Wall Street consensus, the bank's economists see gross domestic product accelerate by 5.3% over the next year, which is significantly stronger than the Federal Reserve's median forecast of 4%.
However, the company sees several roadblocks along the way, most notably the damage rapidly accelerating coronavirus cases will have in recovery.
"The pace of recovery is likely to get worse before it gets better," Goldman economist David Mericle wrote in a report. "Tax support has largely dried up for now, and disposable income has plummeted in the final months of the year. But the biggest risk is that the third wave of coronavirus is likely to worsen in colder temperatures."
Indeed, the number of pandemics has increased in recent weeks. New daily cases cross the 150,000 mark on Thursday and are on the verge of rising further with the onset of winter weather. Few states still have significant restrictions in place, but are more likely than the Virus Spreads to do so.
On the upside, hopes for treatment received a big boost this week when Pfizer reported that its Covid-19 vaccine had a success rate of over 90%.
Should the Pfiizer BioNTech vaccine be approved in early 2021, the most vulnerable sections of the population would be vaccinated first. Once that process begins, economic healing may accelerate, Mericle wrote.
"But the road is likely to be bumpy, as the virus resurgence slows recovery this winter before the vaccine effect re-accelerates next spring," he said.
Over the course of the year, Goldman predicts an acceleration in hiring, with the current unemployment rate falling from 6.9% to 5.3% by the end of the year.
That depends on the likelihood of additional congressional fiscal stimulus – likely around $ 1 trillion under a split government scenario and $ 2.5 trillion if the Democrats win unexpectedly competitive Georgia elections and take over the Senate.
"The economy is likely to pick up again next spring as mass immunization fully reopens the high-contact consumer services that make up most of the remaining output gap," Mericle said. "This is likely to spark a mid-year consumption boom as the spending opportunities restored will allow households to significantly lower their savings rates and spend accumulated excess savings."
The Goldman analysis finds that consumer spending has already recovered to 98% of its pre-pandemic levels, while corporate bankruptcies have been lower thanks to government support programs. Housing construction is also expected to continue to recover, although the consumption of durable goods may slow down.
However, the company said the vaccine's implementation – others are also in late-stage studies – should get consumers back into activities such as dining and other high-contact activities.
"While the road ahead is likely to be bumpy, we expect the mass immunization to largely complete the reopening process and trigger a re-acceleration next spring that will see growth well above expectations for the year as a whole," wrote Mericle. "Once virus fears are largely out of the way, demand for most high-contact consumer services should quickly revert to pre-pandemic levels."
Goldman doesn't expect the rebound in activity to trigger Federal Reserve action.
With the central bank pledging not to raise interest rates until inflation is consistently above 2%, Goldman sees no increases until early 2025. From there, it expects an increase of 50 basis points per year until the benchmark's short-term key interest rate is around 2%. 2.5% of its current anchor near zero.