Goldman Sachs said the economic and investment landscape is returning to the pre-2008 environment.
Strategists say the global economy will perform better than expected in 2023 and deflation should continue.
As the era of ultra-low interest rates ends, things are normalizing.
Goldman Sachs predicts that the probability of an economic recession in the next year is 15%. The bank expects that as the macro pattern returns to the situation before 2008, some favorable factors will support global growth and investment.
Goldman Sachs strategists led by Jan Hatzius emphasized in a report to clients this week titled “The Hard Part is Over” that the global economy will perform even better than optimistic expectations by 2023.
“2024 should solidify the notion that the global economy has emerged from the post-GFC environment of low inflation, zero policy rates and negative real yields,” Hatzius said. During this period, there was often a sense that global yields were heading inexorably lower.” And low inflation – ‘liquidity traps’ and ‘secular stagnation’ were the buzzwords of the decade. “
Policymakers have ended an era of easy money, and the transition to higher interest rates has so far been bumpy, with wild stock market swings, a rapid tightening of financial conditions and More and more “zombie” companies are going bankrupt.
“The big question is whether a return to the pre-global financial crisis interest rate backdrop is an equilibrium,” the strategists said. “In the U.S., the answer is more likely to be yes, especially in Europe where sovereign pressures are likely to re-emerge.”
The Fed lowered interest rates to near zero in the wake of the financial crisis, but a return to a high-rate environment could spell trouble for heavily indebted companies and the broader business environment.
Other Wall Street forecasters have also warned of a wave of distressed debt and troubled balance sheets in the coming months as financial conditions tighten. Schwab expects default rates to peak between now and the first quarter. 2024.
Goldman Sachs expects returns from interest rates, credit, stocks and commodities to outpace cash in 2024.
“transition [from the easy money era] It has been bumpy, but the good thing about this ‘Great Escape’ is that the investment environment now looks more normal than at any time since the pre-GFC era, and real expected returns now look very positive,” Hatzius said.
inflation The company believes that by 2024, GDP should continue to decline, real household income growth should grow, manufacturing activity will rebound, and central banks led by the Federal Reserve should become increasingly willing to cut interest rates.
“We do not believe that the last mile of deflation will be particularly difficult,” Hatzius said. “First, while the improvement in the supply and demand balance in the goods industry (as measured by supplier delivery lags, for example) is now largely complete, the impact on the core The effects of commodity deflation are still being felt and are likely to last through much of 2024.”
Despite the relative optimism, Goldman Sachs strategists said they see risks in 2024 as “higher than normal.”
Even if deflation persists, the Fed and other central banks are likely to keep interest rates high for longer than expected.
The bank said there are also downside risks to economic growth. The recovery of global manufacturing could be delayed, especially if high interest rates prompt companies to normalize inventory levels relative to sales below 2019 levels.
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