Goldman Sachs is anticipating a more “V-shaped” recovery for the global economy than consensus forecasts suggest, and the rebound could now be bigger than expected as hopes rise that a coronavirus vaccine is close.
The news comes hot on the heels of Joe Biden’s projected U.S. presidential election win, and both developments are likely to affect global growth forecasts.
In Goldman’s 2021 global economic outlook, published at the weekend, analysts highlighted that Democrats’ fiscal policy agenda could run into roadblocks as they looked unlikely to command a majority in the Senate. Despite this, the analysts still expect the implementation of a $1 trillion fiscal package in the U.S., potentially before Biden’s expected inauguration on Jan. 20.
More important to the growth outlook, Goldman Sachs Chief Economist Jan Hatzius and his team suggested, will be the new wave of coronavirus infections sweeping through Europe and the U.S., with a number of major European economies returning to partial lockdown measures.
These have caused Goldman’s global growth estimates to be revised downwards in the fourth quarter and the first quarter of 2021, but the bank remains confident that the global economy will outpace the consensus among economists polled by Bloomberg.
The bank projects a global GDP (gross domestic product) contraction of 3.9% in 2020, slightly better than the 4% consensus, followed by a 6% expansion in 2021 (versus 5.2% consensus) and 4.6% in 2022 (versus3.7% consensus), with risks still skewed to the downside.
The IMF (International Monetary Fund) has forecast a 4.4% contraction in 2020 and a 5.2% rebound in 2021.
“Just as the global economy rebounded quickly (albeit partially) from the lockdowns in the spring, we expect the current weakness to give way to much stronger growth when the European lockdowns end and a vaccine becomes available,” Hatzius said in the report.
“Assuming the FDA (the U.S. Food and Drug Administration) approves at least one vaccine by January and mass immunization of the general population starts shortly thereafter, as we expect, growth should pick up sharply in Q2 (the second quarter). The apparent lack of scarring effects from the earlier GDP plunge is consistent with this view.”
Goldman expects central banks in developed markets to maintain a dovish lean over the next few years, with the U.S. Federal Reserve, European Central Bank and Bank of England only beginning to hike rates again in2025.
“Given its high valuation and low U.S. interest rates, this economic outlook should translate in broad U.S. Dollar depreciation over the next year, in our view,” Pandl and Trivedi said in a note Sunday.
They project a 6% depreciation for the nominal, trade-weighted U.S. dollar over the next year, and currently hold short dollar positions against the Canadian and Aussie dollars in the G-10 bloc, and South African rand, Indian rupee and Mexican peso in emerging markets.
Referenc: CNBC
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