In a note released earlier today, following its first Top 6 trades for the coming year, Goldman released what it believes will be the Top 10 Market Themes for 2016, at the very top of which the bold claim that “Global growth is More stable than it looks.”
Whether Goldman is right remains to be seen: ironically it was Goldman itself which just yesterday poked fun at constant errors by the sellside in “predicting”an imminent recovery and always being wrong, and whose only job, it is now clear, is to sell optimism. This is what Goldman said in a Wednesday note:
On the surface, our “more of the same” forecast sounds a bit dispiriting because the recovery in global GDP growth after the Global Financial Crisis (GFC) has been so underwhelming. Year after year, forecasters have had to revise down their initially lofty GDP growth estimates to rates that look pedestrian by pre-GFC standards.This pattern is illustrated in Exhibit 3, which shows how the consensus GDP forecast for the G7 economies has evolved in the Bloomberg survey of economic forecasters for each year since 2011. Every line ends lower than where it started. Although the pattern is no longer as pronounced as in the 2011-2013 period, when the Euro area re-entered recession, reality is still coming in below expectations.
Ok, fine, “it will be different this time.” We’ll see just wrong Goldman’s 2016 global GDP forecast of 3.6% is in one year.
For the time being, here is a the country-by-country bridge of how we get there from the 3.2% growth expected in 2015 to 3.6% a year from now. What is immediately clear is that the entire growth is predicated on two things: India and China maintaining their growth. The irony here, is that in a note earlier this week it was once again Goldman who admitted that Chinese real growth, not the goalseeked joke that the Politburo spews out every quarter, is at best just over 5%. As for India, that may well be the biggest wildcard of 2016.
But what is by far the most notable observation from the chart below: in 2016 just three countries will grow above Goldman’s blended global average growth rate of 3.6%: India, China and Indonesia.
For the sake of Jan Hatzius’ being finally right, one can only hope that the unprecedented collapse in FX reserves in countries just like China and Indonesia does not end up crippling their economies, as many others have claimed will happen and is just a matter of time.
Will Goldman, which has been calling for “above trend” growth in the US ever since the end of 2013, only to be proven wrong again and again, be right? Check back same place, one year from now for the answer.
