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Goldman’s Rosy Forecast About the Economy Is Dead Wrong. Here’s Why

Last Updated September 25, 2020 8:41 PM
Stephanie Bedard-Chateauneuf
Last Updated September 25, 2020 8:41 PM
  • Goldman has raised its economic growth outlook for 2021 as it sees vaccine approval this year.
  • Even if a vaccine becomes available soon, GDP and employment likely won’t grow as fast as Goldman predicts.
  • An early vaccine could have negative consequences that we should be concerned about.

Goldman Sachs has become more optimistic about the arrival date of a vaccine, which has caused it to raise its expectations for economic growth and lower its projection for unemployment.

Goldman Expects Vaccine Approval This Year

The firm sees “at least one” vaccine approved by the end of 2020 . It should hit the market for widespread distribution by the second quarter of 2021.

Dr. Anthony Fauci said drugmakers would likely have tens of millions of doses of a vaccine by early next year.

Video: Fauci Says the U.S. Will Have Tens of Millions of Vaccine Doses by Early ’21

Goldman expects vaccine progress to boost consumer spending and generate stronger GDP and employment growth next year.

In its revised forecast, Goldman still sees the unemployment rate, currently at 10.1%, falling to 9% by the end of this year. It predicts a drop to 6.5% by the end of 2021, half a percentage point lower than its previous forecast.

Regarding GDP, economists also leave their estimates for 2020 unchanged, with annualized gains of 25.2% in the third quarter and 8% in the fourth quarter.

For 2021, Goldman expects GDP to grow by 6.2% on an annual average basis compared to its previous estimate of 5.6%. This is higher than the Federal Reserve’s projection of 5%. 

Goldman economist Joseph Briggs wrote: 

The vaccine outlook has since become clearer and more positive, and the economic benefits for the US appear particularly large due to its leadership in the vaccine race and worse virus control. As a result, we now expect that at least one vaccine will be approved this fall with widespread distribution and positive growth effects felt in the first half of 2021.

The U.S. government has funded three potential vaccines for Phase 3 trials. Competing companies are Moderna (NASDAQ:MRNA), AstraZeneca (LON:AZN), which has partnered with the University of Oxford, and Pfizer (NYSE:PFE)-BioNTech (NASDAQ:BNTX).

Why Goldman’s Forecast Is Too Rosy

Goldman’s forecast is too optimistic. Even if a vaccine gets approved by year-end, many things could go wrong and slow economic growth.

Many Americans will likely not want to receive the vaccine. According to an Associated Press-NORC poll , only about half of Americans said they would receive a COVID-19 vaccine if available.

To eliminate the virus, almost the entire American population must be vaccinated or acquire antibodies through infection and recovery.

It usually takes years to develop a safe and effective vaccine, so the first rounds of doses might now work.

Video: Dr. Rishi Desayi Says Vaccines Are Not 100% Effective

Ali Salem, a chair and professor of pharmaceutical sciences at the University of Iowa College of Pharmacy, told Live Science: 

A sub-par vaccine that produces side effects without protecting against infection would be problematic.

FDA guidance issued in June stated :

To ensure that a widely deployed COVID-19 vaccine is effective, the primary efficacy endpoint point estimate for a placebo-controlled efficacy trial should be at least 50%.

Assuming that only 50% of the population takes a vaccine that is only 50% effective, the country’s vaccination rate could be as low as 25%. This total would be insufficient to end the pandemic.

To achieve herd immunity, the point at which the virus would no longer spread, at least 70% of the country would need to be vaccinated or catch the virus and recover from it.

Besides, this estimate assumes long-lasting immunity to the virus. There is evidence that the natural immune response COVID-19 may be transient,  making further investigation necessary.

Solomon Tadesse, the North America head of quantitative equity strategies at Societe Generale , said investors might overestimate how quickly an effective vaccine can restore lost economic activity and corporate income.

It will take some time for people to unlearn their new pandemic habits and return to normal behavior, even after a vaccine is available. A return to pre-pandemic practices is essential to boost corporate income and overall economic activity.

A vaccine isn’t the silver bullet investors are hoping for.

Disclaimer: This article reflects the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.