U.S. growth will shrink 5% in the next quarter and the coronavirus outbreak will “probably” lead to a recession, Goldman Sachs said.

Published: March 17, 2020 at 7:02 a.m. ET, By Callum Keown

The investment bank’s economic research team, led by Jan Hatzius, said economic activity would “contract sharply” for the rest of March and April as consumers and businesses cut back on spending. They expected a recovery after April, though that was uncertainty, but said their new forecasts “probably” met the criteria for a recession.

They expected real GDP growth of 0% in the first quarter and a contraction of 5% in the second quarter. “This takes our 2020 GDP forecast down to +0.4%(from 1.2%). The uncertainty around all of these numbers is much greater than normal.”

The team said the prospect of a recovery and strong growth in the second half were dependent on whether social distancing and warmer weather reduces the number of virus cases, how quickly reduced infections will bring a return to normality and how effective fiscal and monetary policy turns out to be.

Goldman Sachs chief equity strategist David Kostin said, in a separate note, the S&P 500 could fall to as low as 2,000 points if the economic impact of the virus worsens but expected the index to reach 3,200 by the end of 2020.

The S&P 500 has fallen 26% so far this year, while the Dow Jones Industrial Average US:DJIA has dropped 29%. The Dow suffered its second worst day ever on Monday, falling 2,997 points – 12.9% – only behind 1987’s Black Monday crash.

Source: www.marketwatch.com