Global economy may have bottomed out: report

Positive on risk assets, although upside is now probably lower, says Goldman Sachs. 

The global economy may have already bottomed out, says Goldman Sachs Group Inc. Chief Economist Jan Hatzius.

However, even as 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,” Hatzius and Sven Jari Stehn wrote in a note dated February 26.

Still, the risk to Goldman’s global GDP forecast of 3.5 per cent for 2019 “is probably still on the downside”, reports in the media said.

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 dollar view, given a dovish Fed and expectation for a pick-up in global growth; is modestly bullish on oil over the next 2-3 months, but sees a more bearish outlook for the remainder of the year. The case for a pick-up from the current pace is strongest in the US as the drag from a tightening of financial conditions eases, according to Hatzius.

There are also tentative signs of a turnaround in Chinese growth, according to Goldman.

However, Jamie Dimon, Chief Executive Officer of JP Morgan Chase & Co, on the basis of the banks annual presentation to investors,  acknowledges a growing number of potential obstacles to the economy that carried his firm to record profits last year.

“We are prepared for a recession,” Dimon said. “Were not predicting a recession. Were simply pointing out that we are very conscious about the risks we bear.”

According to Goldman, 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”. It has pushed back its expectations for the first ECB hike from late-2019 to mid-2020.

Goldman notes regarding Fed 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 run-off later this year, probably in September.

Source: media reports


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