The US economy is deteriorating more severely than previously anticipated and will shrink at an annual rate of 7 percent this quarter, with the unemployment rate rising to 10 percent by the end of next year, a Goldman Sachs economist forecast. "Our expectations for near-term US economic activity swung sharply to the downside last week," wrote Goldman economist Ed McKelvey in a research note dated Monday.
Among factors behind that shift in view were steep falls in consumer spending, fresh signs of weakening industrial activity, further evidence of a sharp fall in housing activity and ongoing deterioration in the labour market, McKelvey wrote.
The estimated 7 percent annual rate of contraction for US gross domestic product in the first quarter exceeds Goldman's previous forecast for a 4.5 percent contraction. The bank expects GDP to contract 3 percent in the second quarter, exceeding its earlier forecast for a 1 percent fall. The US unemployment rate, currently at 7.6 percent, is now expected to rise to 9.5 percent by the end of this year and to 10 percent by the end of 2010, the note said. Year-over-year US consumer prices are expected to rise 1 percent by the end of this year and to be at zero by year-end 2010, Goldman said.