Goldman Sachs, a New York-based investment bank and financial services company, hadn’t properly accounted for the current trade war between the United States and China, reports CNBC. In fact, because of this, the company ended up lowering its quarter four growth forecast by 20 or so points, hitting a 1.8%. Jan Hatzius, chief U.S. economist at the company, made a note to their clients this Sunday:
“We have increased our estimate of the growth impact of the trade war. The drivers of this modest change are that we now include an estimate of the sentiment and uncertainty effects and that ﬁnancial markets have responded notably to recent trade news.”
As you may know, the trade war has only gotten worse recently, especially considering Trump’s 10% tariffs on Chinese imports. That’s not to mention the market’s worst day of 2019 this Monday and the Chinese yuan seeing a big drop in value. This is partly due to the country stating that they would stop purchasing products from the United States agricultural scene as a response to Trump’s tariffs.
On top of this, Hatzius says that financial conditions, uncertainty surrounding policies, and supply chain distribution, among a few other factors, also lead to the group’s drop in growth:
“The policy uncertainty effect may lead ﬁrms to lower capex spending as they wait for uncertainty to resolve. Relatedly, the business sentiment effect of increased pessimism about the outlook from trade war news may lead ﬁrms to invest, hire, or produce less.”
The economist also states that Goldman Sachs may lower its local activity due to supply chain disruption as a result of the tariffs. As of now, the company expects a 0.6% drop regarding GDP, and also notes a 0.2% drag from the recent situation. “Fears that the trade war will trigger a recession are growing,” he says.
The company plans on these tariffs going into effect this September.