This past Wednesday Goldman Sachs lowered its forecast for 2023 economic growth. The main cause of this change in expectations was said to be a reduction in lending from both small and medium sized banks due to instability in the overall financial system. The firm lowered its forecast to 1.2%, a decrease of 0.3 point, expecting banks to attempt to keep more liquidity in preparation for withdrawals. These tighter lending standards will likely affect aggregate demand causing GDP growth to be lower than initially projected.
The firm noted that banks with less than $250 billion in assets account for significant portions of all lending, specifically 50% of commercial and industrial lending and 80% of commercial real estate lending. The analysts now expected that small banks that have a low share of FDIC covered deposits will reduce lending by 40% and other small banks will reduce lending by 15% causing total bank lending to decrease by 2.5%. The effects of this tightening of lending is expected to have the same impact on growth as an interest rate increase of 25 to 50 points.
Source - https://www.cnbc.com/2023/03/15/goldman-sachs-cuts-gdp-forecast-because-of-stress-on-small-banks.html
Do you think they'll lower their forecast again in the next couple of months? It seems more than a few banks are running into this lending problem, including some prominent ones that have failed completely. Is there some sort of lending requirement incoming by the Fed?
ReplyDeleteIt was interesting to read how one specific bank or entity feels about the U.S. current economic situation rather than the FED or a large consensus. While you did somewhat talk about Goldman Sachs individually, I would like to know about the implications on their firm more than other banks and not as much how they feel about changes with banks overall.
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