US Economic Growth Rates Revised Downward Amid Delta Variant Spread

Economic Recovery Expectations Diminish
Morgan Stanley "Reducing Investment Proportion"

[Image source=AP Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Major U.S. institutions have successively downgraded their forecasts for U.S. economic growth. Initially, it was widely expected that economic recovery would accelerate around Labor Day in the U.S. (local time, September 6), but analyses now suggest that the spread of the Delta variant has dealt a greater blow to the U.S. economy than anticipated. In particular, Morgan Stanley has advised investors to reduce their allocation to U.S. stocks.

According to the Wall Street Journal (WSJ) on the 7th (local time), many economists had predicted until early summer that the U.S. economy would make a significant leap forward after Labor Day on September 6. This expectation was based on the expansion of vaccinations and the normalization of office attendance by U.S. companies, which was expected to revitalize local economies.

However, the spread of the Delta variant has caused major companies such as Apple, Wells Fargo, Chevron, and Amazon to postpone the resumption of office attendance, putting a brake on recovery. Especially, the U.S. Department of Labor's report on September 3 (local time) showed that nonfarm payroll employment increased by only 235,000 compared to the previous month, raising concerns about a slowdown in economic recovery.

Accordingly, major institutions are also lowering their forecasts for U.S. economic growth rates one after another. Oxford Economics had forecast the U.S. annual economic growth rate at 7.5% at the end of June but has revised it down to 6%. IHS Markit also projected this year's U.S. GDP growth rate at 6.1%. Goldman Sachs initially forecasted a 6% growth rate for the U.S. economy this year but has lowered it to 5.7%, and its fourth-quarter forecast was revised down from 6.5% to 5.5%.

Goldman Sachs analyzed, "The hurdle for future consumption growth has increased," adding, "While the Delta variant is already weighing down third-quarter growth, the weakening effect of fiscal stimulus and delays in the recovery of the service sector will have negative impacts in the medium term."

Morgan Stanley downgraded its investment rating on U.S. stocks to 'underweight' on the same day, sending a warning message to investors.

Andrew Sheets, Multi-Asset Strategist at Morgan Stanley, stated, "In the next two months, significant risks will arise from growth, policy, and legislative issues," and added, "Reduce exposure to U.S. stocks and consider holding European or Japanese stocks."

This content was produced with the assistance of AI translation services.