Goldman Sachs cuts U.S. GDP forecasts, increases recession odds

Yahoo Finance Live's Julie Hyman and Brian Sozzi report that Goldman Sachs has cut its U.S. 2022 GDP forecast as recession odds increase.

Video transcript

JULIE HYMAN: We've got some headlines from Vladimir Putin, who says that talks have been progressing between Ukraine and Russia. He says there are certain positive developments. He said this outside of a meeting with the head of Belarus. And so that may be causing a little bit of optimism in the markets.

At the same time, President Biden today expected to announce that the US is going to call for suspension of normal trade relations with Russia. That would result in an increase in tariffs for many Russian products. And, Sozz, as everyone on the Street, in America, around the globe is trying to figure out what the effect of all of this will be-- and we've been watching these higher commodity prices. Goldman Sachs is weighing in today, getting more pessimistic.

BRIAN SOZZI: Yeah, Julie. I'd say the first investment bank here signaling that growth is likely to slow very sharply here in the coming quarters. Could see a lot more calls like this in coming weeks. But what is, in fact, this call? Goldman Sachs' chief economist Jan Hatzius out here this morning, saying the economy will barely grow in the first quarter, looking for a 5/10 of a percent increase in real GDP. Slashed his full year GDP outlook to 1.75% from 2% previously. Consensus estimates-- or the economists on the street are still looking for about a 2.7% GDP growth estimate.

But what really caught my attention here, Julie-- and I wrote more about this in a story on the Yahoo Finance Homepage this morning-- is what Hatzius is saying about a potential recession. He's noting that there is a 20% to 35% recession implied for next year. So that's something I don't think the markets have baked in here. But now Goldman putting a stake in the ground here that you have to be worried about. Sharply slowing growth, but also a potential recession here. But given where everything that's happening in the world, of course, notably higher energy costs.

JULIE HYMAN: Yeah. And if I'm not mistaken, I think Goldman is the lowest of the big banks on the Street in terms of this full year GDP forecast. So definitely sort of planting a flag in the ground here on this topic. We'll see if we start to get some others that come down to this level as well, Sozz. I also wanted to mention, as we look at the fallout from what's going on in Russia, there was a report in the FT this morning that BlackRock is on the hook because of its-- through its funds for $17 billion. That's how much it lost last month because of trades related to Russia. Obviously, BlackRock is an ETF giant. So part of it has to do with what's going on there.

Now, for BlackRock, I wouldn't quite call it a drop in the bucket. But $17 billion is still only 0.2% of its $10 trillion in assets under management. But if it lost that much, we're going to start to hear I think more and more about the exposure of banks, whether it comes to commodities or what have you, and how much this situation is costing them. We're going to get more information about writedowns I would imagine, right?

BRIAN SOZZI: Yeah. And we also heard some speculation this week too that PIMCO could be on the hook for losses on its debt related to Russia. But look, Julie, these warnings, to your point, are likely coming in a few weeks. It would behoove the banks to release some form of guidance before they start reporting earnings next month. That would be very helpful to investors.