Goldman Sachs cuts U.S. GDP forecast after Manchin retreats on Biden’s bill By Reuters

(Reuters) – Goldman Sachs (NYSE:) trimmed its quarterly GDP forecasts for 2022, after U.S. Senator Joe Manchin withdrew his support to U.S. President Joe Biden’s $1.75 trillion domestic investment bill.

Manchin, a moderate Democrat, appeared to deal a fatal blow to Biden’s Build Back Better (BBB) policy bill on Sunday, which aims to expand the social safety net and tackle climate change.

“We had already expected a negative fiscal impulse for 2022 as a result of the fading support from COVID-relief legislation enacted in 2020 and 2021, and without BBB enactment, this fiscal impulse will become somewhat more negative than we had expected,” Goldmans Sachs analyst Jan Hatzius wrote in a note on Sunday.

Hatzius lowered U.S. GDP forecast for Q1 2022 to 2% from 3%, not factoring in that BBB would become a law, cut Q2 outlook to 3% from 3.5%, and Q3 forecast to 2.75% from 3%.

“While BBB in its current form looks unlikely, there is still a good chance that Congress enacts a much smaller set of fiscal proposals dealing with manufacturing incentives and supply chain issues,” Hatzius said.

Goldman Sachs says there is still a chance that Congress extends the expanded child tax credit programme, which aims at providing free childcare, with some modifications, though “the odds of this occurring are less than even.”