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- Goldman Sachs says a vaccine-resistant COVID-19 strain is a “downside risk” in 2021.
- New mutations could cut growth from 6.6% in 2021 to as low as 4%, Goldman said.
- Yet the bank is still bullish about the US economy in 2021 due to vaccines and stimulus.
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The emergence of a vaccine-resistant strain of coronavirus would have the potential to derail the US economic recovery, Goldman Sachs said in a report, laying out possible risks to the outlook in 2021.
Goldman economists said in a note over the weekend they still believed vaccinations and government support will lead to “very strong growth” in 2021. Almost all investors agree, which has driven stock markets to all-time highs in recent weeks.
But the bank said a few – albeit unlikely – events could cause a “much slower recovery” that could see the economy grow just 4% in 2021 rather than 6.6%, as the bank currently expects.
They are: Consumers remaining more cautious than economists expect; virus mutations raising the bar for “herd immunity”; and the evolution of a vaccine-resistant strain of COVID-19.
Goldman economists said the "most concerning" possibility was a new strain of coronavirus that is resistant to vaccines. More infectious new strains have emerged in recent months and led to a sharp rise in cases globally.
However, early evidence suggests vaccines are effective against the new UK strain. And although some preliminary data suggests vaccines could be less effective against the South African variant, scientists have interpreted the findings cautiously.
Goldman's analysts noted most viruses do not regularly mutate to the point that they render vaccines ineffective. And they said most experts think such an "evolution" is unlikely to happen soon.
Yet they said a vaccine-resistant strain would hit the economy, "because consumers would pull back spending in virus-sensitive sectors that should otherwise reopen".
The analysts said more social distancing measures and a wait for a new vaccine could cause the US economy to grow 4% in 2021, compared to the current baseline forecast of 6.6%.
Goldman's baseline forecast is well above consensus estimates of around 4.1% growth in 2021. The US economy shrank around 3.5% in 2020.
Another concern is that mutations of COVID-19 could be more infectious, leading to a higher bar for "herd immunity". The World Health Organization describes herd immunity as "the indirect protection from an infectious disease" due to immunity because of vaccines or previous infections.
Goldman estimated a scenario where "the boost from the recovery in services spending is pushed back by two months due to the delay in reaching herd immunity" could knock growth down to 5.1% in 2021.
The other risk to the US economy is people remain more cautious and reluctant to go out and spend less than economists currently predict.
However, Goldman's analysts said this would have a smaller impact on growth and is unlikely.
"Surveys indicate that mass vaccination will significantly increase consumers' willingness to resume virus-sensitive activities," they said.
"And the experience of other countries that have more effectively controlled the virus also shows that virus-sensitive services can quickly normalize once infections decline."
Overall, Goldman was bullish about the prospects for the US economy despite flagging a few potential risks.
It said that the recovery could well be better than expected, "if households rapidly spend the sizable excess savings they are accumulating during the pandemic, and the growth impact from substantial further fiscal stimulus in 2021".