Economic Stagnation Arrives As “Sugar Rush” Fades

Economic stagnation arrives as expected as the “Sugar Rush of liquidity continues to fade from the system.

Before we review what wrote in March 2021, Goldman Sachs just slashed their GDP growth rates for 2022.

“Specifically, the bank slashed its Q1 GDP forecast from 2.0% to just 0.5%, and while the bank fudged the other quarters modestly higher, it lowered its 2022 annual average GDP forecast by 0.2% to +3.2% (vs. +3.8% consensus) while warning that “the annual average masks the sharp deceleration in growth from 2021 into 2022, which is better captured by the 2022 Q4/Q4 rate, which we now expect will be +2.2% (previously +2.4%).” – Zerohedge

What was the reasoning for this economic stagnation after very exuberant expectations previously?

“Goldman calculates that fiscal support boosted real disposable income to 5% above the pre-pandemic trend on average in 2021. But following the lapse of the expanded child tax credit this month, disposable income has likely dipped below trend. It will remain an average of 1% below the pre-pandemic trend in 2022 even after penciling in strong gains in labor income. As Goldman’s Jan Hatzius writes, ‘this decline should weigh on consumer spending. It is a large part of why we expect growth to slow to only slightly above potential by the end of the year. However, the impact should be cushioned by the spending of excess savings built up during the pandemic that still total nearly $2.5 trillion.“ – via Zerohedge

Economic Stagnation, Economic Stagnation Arrives As “Sugar Rush” Fades

While Goldman is still optimistic overall, the problem with their assumption, as noted by the WSJ, is that the bottom 90% of Americans don’t have much in savings. It belongs almost entirely to those in the top-10%.