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Goldman Sachs cuts US GDP growth forecast this year to 1.2%, expects the economy to be hit by the banking crisis

Goldman Sachs, the multinational investment bank and financial services company, has lowered its US economic growth forecast for 2023, citing concerns about the ongoing banking crisis affecting small and medium-sized banks across the country.

The Goldman Sachs analyst team has cut its 2023 U.S. economic growth forecast by 0.3 percent to 1.2 percent, due to the assumption that small US banks will try to maintain adequate liquidity. If depositors want to withdraw money from their bank accounts, banks may have to implement more stringent lending standards, which could lead to reduced borrowing and ultimately exacerbate the US economy, which has already been affected by the Federal Reserve’s tightening monetary policy.

Goldman Sachs stated that banks with assets of less than $250 billion account for approximately 50% of US commercial and industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending, and 45% of consumer lending. The bank hypothesized that small banks with low deposits that are protected by the Federal Deposit Insurance Corporation (FDIC) may reduce new lending by 40%, which would result in a 2.5% drop in overall lending in the banking system.

Goldman Sachs warned that tighter lending standards could have the same impact on demand growth as a 0.25-0.50% rate hike. The ongoing banking crisis in the US is expected to put pressure on the financial system and adversely affect the US economy’s growth prospects in the near term.

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