Flavio Lo Scalzo/Reuters

Goldman Sachs on Friday dramatically cut its US economic forecast, saying it now expects GDP to decline by 24% in the second quarter of 2020 because of the coronavirus pandemic.

A drop of that size would set a record - it would be nearly 2 1/2 times the 10% drop seen in 1958.

"Early data points over the last week strengthen our confidence that a dramatic slowdown is indeed already underway," the Goldman Sachs economist Jan Hatzius wrote in a Friday note.

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After already saying the coronavirus outbreak will push the US into a recession, Goldman Sachs on Friday updated its estimates and now thinks the fallout could be even worse than it expected.

Goldman Sachs dramatically cut its US economic forecast and is now expecting gross domestic product to decline by 24% in the second quarter of 2020 because of the coronavirus pandemic. A drop of that size would be a record, nearly 2 1/2 times the 10% drop seen in 1958.

"The sudden stop in US economic activity in response to the virus is unprecedented, and the early data points over the last week strengthen our confidence that a dramatic slowdown is indeed already underway," the Goldman Sachs economist Jan Hatzius wrote in a Friday note.

There are three main reasons Goldman slashed its GDP forecast. The first is that the firm expects spending in face-to-face service industries to take a more severe hit as consumers are increasingly encouraged to practice social distancing and stay at home.

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Second, Goldman is forecasting a major contraction in manufacturing, with reduced domestic demand for non-food goods; reduced foreign demand for US goods exports; supply-chain disruptions; and plant closures.

The firm also said it foresees a slowdown in the US housing sector, from construction through real estate, similar to data in Asia.

Goldman said the hits would lower US GDP by as much as 10% in April. It now expects full-year growth in the US of -3.8% on an annual average basis.

Goldman Sachs

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The firm expects that after April that drag on the economy will gradually fade by about 10% per month.

"While the exact timing is highly uncertain and relapses are plausible, the assumption of a gradual recovery reflects the potential contributions from factors such as effective mitigation and testing actions, weather effects, medical breakthroughs or adaptation by firms and consumers," Hatzius said, adding that the slow pace of recovery even in 2021 would mean longer-lasting scarring for businesses and workers.

The downward revision in growth also sharply increased Goldman's unemployment-rate forecasts. The firm expects the unemployment rate to increase to 9% from 3.5% over the next couple of quarters.

Details of the White House's fiscal stimulus package could push the unemployment rate up or down, Goldman said.

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