Forecasts And Output Gaps In The Wake Of Covid-19 (As Of Early March)

No major economics agency or group has forecasted a recession in their baseline. However, forecasts are definitely being marked down.

Figure 1: GDP as reported (black), CBO January 2020 projection (blue +), Goldman Sachs baseline forecast (pink +), CBO estimate of potential GDP (gray), HP filter applied to 1986-2019 (brown), SAAR, in billions Ch.2012$, all on log scale. Source: BEA 2019Q4 2nd release, CBO Budget and Economic Outlook, Goldman Sachs (March 4), and author’s calculations.

While no recession is forecast (Goldman Sachs has 0% growth in Q2, Deutsche Bank barely negative), the output gap goes negative in the GS baseline (using the CBO estimate of potential).

Figure 2: Output gap using CBO January 2020 potential (gray), Goldman Sachs baseline forecast relative to CBO January 2020 potential (pink), HP filter deviation applied to 1986-2019 (brown), and Hamilton filter deviation applied to 1986-2019 (green). Source: BEA 2019Q4 2nd release, CBO Budget and Economic Outlook, Goldman Sachs (March 4), and author’s calculations.

Here is Goldman Sachs’s decomposition of the impact.