Global Economy May Have Bottomed Out

Global Economy May Have Bottomed Out


FLASH: On the global markets, some green shoots are emerging.

The global economy may have already bottomed out, according to Goldman Sachs Group Inc. Chief Economist in a note Tuesday.

While growth remains soft, Goldman’s current activity indicator in February is slightly above the downwardly-revised December and January numbers.

Some green shoots are emerging that suggest that sequential growth will pick up from here. Still, the risk to Goldman’s global GDP forecast of 3.5% for Y 2019 ‘is probably still on the downside.’

On markets, Goldman:

  • Remains positive on risk assets, although upside is now probably lower as markets have become ‘more sanguine on recession’
  • Expects bond yields to rise
  • Maintains a bearish USD view, given a dovish Fed and expectation for a pickup in global growth
  • Is modestly bullish Crude Oil over the next 2-3 months, but sees a more bearish outlook for the remainder of the year

The case for a pickup from the current pace is strongest in the US as the drag from a tightening of financial conditions eases, according to Goldman.

Goldman also sees tentative signs of a turnaround in Chinese growth. That is in line with our snapshot of early indicators of activity:

Goldman reckons Europe looks like the weakest major region, ‘with Italy in recession, Germany close to it, and most other economies growing at only about a trend pace,’ according to the note.

Goldman has pushed back its expectations for the 1st ECB hike from late-2019 to mid-2020.

As for the Fed: Goldman says the prospects for moves in the next 6 to 9 months have fallen and an increase toward the end of the year would require a rebound in both growth and core inflation. It expects an announcement at the March meeting that the Fed will end balance sheet runoff later this year, probably in September.

Stay tuned.

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