Global economy will ‘stop just short’ of recession from coronavirus, Goldman economist says

Goldman Sachs’ chief economist, Jan Hatzius, said Monday that the coronavirus epidemic will likely bring the global economy right to the edge of a recession.

Hatzius, appearing on CNBC’s “Closing Bell,” said that the world economy would likely shrink for “a quarter or so” but rebound before officially becoming a recession. 

 “We wouldn’t have to see that much more weakness, whether it’s out of China and then the spillovers associated with that, or maybe the pullback in consumer activity, to turn it into a recession. Our best guess is it stops just short of that,” Hatzius said.

U.S. stocks bounced back Monday after the S&P 500, Dow Jones Industrial Average and Nasdaq Composite slipped into correction territory last week, meaning they were 10% below their record highs. 

However, cases of coronavirus continued to spread around the world and in the United States, where at least six people have died from the virus in the Seattle area. Chinese economic data from February also showed significant contraction. 

Hatzius said there are downside risks that could pull the global economy into recession. 

“Clearly, there’s a lot of uncertainty, and a lot of the uncertainty is in areas that normally economic forecasters don’t have to have a judgement on, namely the medical issues,” Hatzius said.

That uncertainty has led to pressure on the Federal Reserve and other central banks to find ways to support the global economy. President Donald Trump on Monday called for the Fed to cut interest rates. 

Goldman Sachs expects most major central banks to reduce rates, and Hatzius said a coordinated effort might be the smartest approach for the banks to take. 

“It seems almost like a freebie to get a little bit of additional signal from doing it together,” Hatzius said.