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Goldman Cuts GDP Forecast After Manchin's Build-Back Rejection

Given 'our changed fiscal assumptions,' Goldman lowered its first-quarter GDP forecast to 2% in the first quarter from 3%.
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Goldman Sachs has cut its U.S. GDP estimates for next year, following Sen. Joe Manchin’s (D-West Virginia) rejection of President Joe Biden’s spending plan over the weekend.

Passing the Build Back Better legislation “already looked like a close call and in light of Manchin’s comments, we are adjusting our forecast to remove the assumption that BBB will become law,” Goldman economists led by Jan Hatzius said.

“While BBB in its current form looks unlikely, there is still a good chance that Congress enacts a much smaller set of fiscal proposals dealing with manufacturing incentives and supply chain issues.

“There is also still a chance that Congress retroactively extends the expanded child tax credit, with some modifications, though we think the odds of this occurring are less than even.

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“In light of our changed fiscal assumptions, we are lowering our real GDP forecast for 2022: 2% in the first quarter (versus 3% prior), 3% in the second quarter (versus 3.5% prior), and 2.75% in the third quarter (versus 3% prior).”

The economy expanded 2.1% in this year’s third quarter.

To be sure, the demise of BBB could lift stocks, the Goldman economists said.

“The odds of corporate tax increases have now declined, for example, which our equity strategists had estimated would reduce S&P profits by 3%,” the economists said.

“And while a failure of the BBB legislation would be a clear setback for the renewable energy sector, it would be a positive for biopharma, which would no longer be tapped for more than $100 billion in price reductions in the Medicare program.”