(Bloomberg) -- Goldman Sachs Group Inc. economists cut their forecasts for the U.S. economy this year and next after deciding the spread of the omicron strain of the coronavirus would exert a “modest downside” drag on growth. 

In a weekend report to clients, economist Joseph Briggs said Goldman Sachs now expects U.S. gross domestic product to expand 3.8% this year, down from 4.2%. It reduced its 2022 estimate to 2.9% from 3.3%.

“While many questions remain unanswered, we now think a modest downside scenario where the virus spreads more quickly but immunity against severe disease is only slightly weakened is most likely,” said Briggs.

The economist said omicron was likely to have only a modest effect on services spending and could exacerbate supply shortages. It could also delay when some people feel comfortable about returning to work, he said.

Briggs saw a mixed effect on inflation. While virus-sensitive sectors such as travel may be hit, further shortages of supplies and labor could push up prices in a more lasting way, he said.

 

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