Goldman Sachs slashes US GDP forecast, warns of economic ripple effect from banking route

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Sachs (GS) warned on Wednesday the effects of an economic ripple effect following the Silicon Valley Bank (SIVB) and Signature Bank (SBNY) busts.

The investment bank’s chief economist Jan Hetzius slashed his 2023 GDP forecast by 0.3% in a new note Wednesday afternoon. Hatzius looking for full-year GDP growth 1.2%.

“The macroeconomic impact the pullback in lending will remain highly uncertain until the extent of stress on the banking system becomes clear,” Hatzius wrote.

The collapse the Silicon Valley bank last Friday marked the second largest bank failure in the US during the Great Recession, behind only Washington Mutual. The demise of Signature Bank was the third largest bank failure in history.

Sources told Yahoo Finance that the turmoil prompted regulators to act to prevent a banking crisis and the massive tech layoffs that are likely to happen if left unchecked.

A joint statement US Treasury Secretary Janet Yellen, Fed chief Jerome Powell, and FDIC Martin Gruenberg said on Sunday that depositors would have access to all their money from troubled banks.

Customers and passersby queue outside a Silicon Valley Bank branch on Monday, March 13, 2023 in Wellesley, Mass. (AP Photo/Steven Sen)

Still, the impact the collapse on bank lending is wildly unknown. Credit Suisse’s struggling play this week is also not helping sentiment.

Credit Suisse stock took a fresh hit on Wednesday as the company’s largest shareholder — the Saudi National Bank — said it would provide no further financial support. It sent investment bank executives into the market to try and re-instill confidence, with little to show for the efforts.

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Hatzius thinks the barrage negative headlines could weigh on lending and, by extension, economic growth.

“US policy makers have taken aggressive steps to strengthen the financial system, but concerns about stress in some banks remain,” Hetzius explained. “Smaller banks may become more conservative about lending due to the ongoing pressure needed to preserve liquidity to meet depositor withdrawals, and a tightening in lending standards may weigh on aggregate demand.”

Brian Sozzi is the executive editor Yahoo Finance. Follow Sozy on Twitter @BrianSozzi and on LinkedIn,

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