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Goldman Sachs cuts GDP forecast because of stress on small banks, which are key to U.S. economy

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Goldman Sachs on Wednesday lowered its 2023 economic growth forecast, citing a pullback in lending from small- and medium-sized banks amid turmoil in the broader financial system.

The firm lowered its growth forecast by 0.3 percentage points to 1.2% under expectations that smaller banks will attempt to preserve liquidity in case they need to meet depositor withdrawals, leading to a substantial tightening in bank lending standards.

Tighter lending standards could weigh on aggregate demand, implying a drag on GDP growth already affected by tightening in recent quarters, Goldman economists David Mericle and Manuel Abecasis wrote in a note to clients. «Small and medium-sized banks play an important role in the US economy,» the analysts wrote. «Any lending impact is likely to be concentrated in a subset of small and medium-sized banks.» Banks with less than $250 billion in assets comprise about 50% of U.S.

commercial and industrial lending, 60% of residential real estate lending, 80% of commercial real estate lending and 45% of consumer lending, according to the firm.

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