Forecasts and Output Gaps in the Wake of Covid-19 (as of early March)

No major economics agency or group has forecasted a recession in their baseline. However, forecasts are definitely being marked down.


Figure 1: GDP as reported (black), CBO January 2020 projection (blue +), Goldman Sachs baseline forecast (pink +), CBO estimate of potential GDP (gray), HP filter applied to 1986-2019 (brown), SAAR, in billions Ch.2012$, all on log scale. Source: BEA 2019Q4 2nd release, CBO Budget and Economic Outlook, Goldman Sachs (March 4), and author’s calculations.

While no recession is forecast (Goldman Sachs has 0% growth in Q2, Deutsche Bank barely negative), the output gap goes negative in the GS baseline (using the CBO estimate of potential).

Figure 2: Output gap using CBO January 2020 potential (gray), Goldman Sachs baseline forecast relative to CBO January 2020 potential (pink), HP filter deviation applied to 1986-2019 (brown), and Hamilton filter deviation applied to 1986-2019 (green). Source: BEA 2019Q4 2nd release, CBO Budget and Economic Outlook, Goldman Sachs (March 4), and author’s calculations.

Here is Goldman Sachs’s decomposition of the impact.

Source: Goldman Sachs, March 4th, 2020.

And here is Deutsche Bank’s, including a “worse case” (not “worst case”)…

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23 thoughts on “Forecasts and Output Gaps in the Wake of Covid-19 (as of early March)”

  1. macroduck

    It would be interesting to know the extent to which financial shock has been included in various estimates, and the assumptions used.

  3. Moses Herzog

    Am I the only person who thinks the 3rd and 4th quarter numbers are wildly positive?? What am I missing here?? It almost has me thinking I’m reading the margin labels on the graphs wrong or something,

  4. Baffling

    So the opec fiasco will kill oil over the next year and push texas into a recession, from a nicely growing economy. Texas may be in play for democrats much sooner than some had predicted. That would be a monstrous change in the electoral college calculus.

    1. Moses Herzog

      I know the state of Oklahoma would be hit hard if oil and gas prices are hit hard (going down). EVERY time it happens state revenues are gutted and demolished. Oklahoma ranks as one of the dumbest and most illiterate of the 50 states, with very little money appropriated to public schools, and legislators and private schools absconding with money. The reason is, since the late ’70s they see no reason to EVER put their eggs in any other basket than minimum wage jobs and McDonald’s and Wal-Mart and handing out tax rebates to oil and gas. It’s one of the saddest and apathetic things you have ever seen in your life. Every time anyone even suggests Oklahoma have eggs in other baskets than oil and gas, the oil and gas executives and lobbyists go down to the state Republican legislators’ offices and start bawling like infants.

      I disagree on your party power prediction though. Texans aren’t going to blame Republicans for a drop in the price of oil. Any more than soybeans farmers blame donald trump for the price drop in their crop.

      1. baffling

        “Texans aren’t going to blame Republicans for a drop in the price of oil.”
        but they may simply not vote. and beto almost beat cruz in the last election, so it may not take much to turn it blue-at least for one cycle. that said, democrats must overcome some serious voter suppression policies that have been implemented by conservative over the past decade. not insurmountable, but not a given either. i think the rest of america would be thoroughly disgusted by the disenfranchisement of democratic voters in texas today.

        1. Moses Herzog

          Well, according to Barkley Junior and Menzie, all of those new stratagems on voter suppression are due to Nancy Pelosi’s deep and misunderstood genius, which I am just “blind” to seeing because of my horrendous views related to gender. I don’t know what my feelings on gender have to do with Nancy Pelosi prancing around with a $hit-eating grin on her face the last 20+ years while all these voter suppression laws are enacted, but I’m sure someday my blindfold will be yanked off by one of Barkley’s progeny no doubt.

          1. baffling

            the supreme court overturned the voter rights act in texas a while ago. the conservatives in the state government then systematically introduced changes into the voting apparatus until you finally see the end result today. during the last presidential election, i could vote early in a republican area and wait about 15 minutes in line. or i could have gone to a democratic area and waited 2 hours. it was even worse in this past primary. not sure how pelosi controls the texas state legislature? but i do know that this is the type of system that got trump elected, and possibly reelected. it also means how the state of texas tampers with the vote has a direct impact on every other election in the nation.

          2. Barkley Rosser

            What a pile of crap you are spouting Moses. These voter suppression efforts are going on at the state level. Has noting to do with Nabcy Pelosi. Are you severely drunk again or something?

          3. Moses Herzog

            To My dearest LOVe Barkely Junior,
            IN the name of honesty, and Menzie’s always portraying my true thoughts as the honest guy he is, NO, I was not drunk when typing that. I kinda wished I was, but I am semi-drinking as I write this, Here is my question to the local Virginia genius. Do you think as the Speaker of the House Pelosi might have “SOME” control over how the DNC “allots” money to state party races?? Now take the extra time as your senior citizen mind can handle to decipher this “deep” political question. “IN the mean time”, Please ask Nancy to take off her jacka$$ smiling grin when talking about the apocalypse, Warm regards, Your nephew talking to his beloved Dementia Uncle…. , with dearest love, Moses

  5. r.j. sigmund

    it’s going to be hard to print a negative GDP with falling imports from China (which will add to GDP)….i’ll bet that lower imports answers some of Moses’s questions about the 3rd & 4th quarter strength too…

    2. Menzie Chinn Post author

      r.j. sigmund: Pretty sure in 2008 we got negative growth as imports fell. You can download “growth contributions” from BEA to verify…

      1. Moses Herzog

        Proving once again that dry humor is the best humor.

        Also dry wines are better than sweet wines. Coincidence?? I’m going on a classified mission to get a LARGE bottle of Beringer Zinfandel to help me with my severe depression when Bernie loses Michigan tomorrow. The most pro-union candidate in the race and he’s going to lose In a labor state. I’ll be lucky if I’m not chugalugging by 10pm with the idiots we have in this nation. OK, not going to go there. Not going there….

        1. baffling

          if bernie loses, it simply goes to show he lacks the “something” necessary to lead the nation as a whole. he can rally his own select troops, but if he can’t get the rest of them up and fighting, then he is not the leader we need right now. this is why i consider him not electable. but watch, after discounting him, he will show me wrong in michigan…

  6. Michael

    In a commentary in Monday’s (March 9) PBS News Hour, the analyst (sorry, don’t remember his name) from Moody’s Analytics twice stated clearly “a recession is very likely” in 2020. The session is probably posted on the PBS website.

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