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Goldman Sachs says advanced economies will shrink by 35% in the 2nd quarter

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  • Goldman Sachs' chief economist predicted that advanced economies would shrink by about 35% in the second quarter of 2020 compared with the first three months.
  • The economist, Jan Hatzius, praised global policymakers' responses meant to keep households and businesses afloat but said that Europe should do more and that wealthy countries needed to help developing economies.
  • "Emerging economies will need a lot more help from the rich world," Hatzius wrote in a note to clients on Monday.
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Gross domestic product for advanced economies will shrink by about 35% in the second quarter of 2020 from the prior three months, Goldman Sachs predicted in a note on Monday.

The forecast contraction would be four times the record set in 2008 during the financial crisis, according to annualized figures from Goldman Sachs.

Though most job losses are expected to be temporary and unemployment benefits have been raised sharply, the separation of workers from their jobs is "dramatic," the bank's New York-based chief economist, Jan Hatzius, wrote in a note to clients.

While the number of new active coronavirus cases appears to be peaking across the globe, experts have urged caution in reopening economies.

The improvement is "probably a direct consequence of social distancing and the plunge in economic activity, and could reverse quickly if people just went back to work," Hatzius wrote.

Hatzius complimented global policymakers' responses to try to replace people's incomes and counter threats to the flow of credit but said efforts in Europe should be scaled up with a "whatever it takes" commitment.

To get through the severe crisis, "emerging economies will need a lot more help from the rich world," he said, highlighting measures such as bilateral loans, financing from the International Monetary Fund and the World Bank, and outright aid.

As of Tuesday, global reported coronavirus cases had reached about 2 million, with more than 100,000 deaths.

Last week, the IMF raised its emergency lending facilities after more than 90 countries requested aid.


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