Goldman Cuts European GDP Forecast

Tyler Durden's picture

A shining example of "the chicken of the egg" type of analysis has emerged courtesy of Goldman's FX and European economic teams.  As we disclosed first a few days ago, the Goldman FX guys raised their 12 month EURUSD forecast from $1.38 to $1.55. Obviously, Erik Nielsen economist group has now decided to cut Europe GDPs across the board, with only Italy and France getting hit in 2010, and pretty much everyone in 2011: total projected Europe GDP has now declined from 2.2% to 1.8% in 2011. Of course, this would mean immediately that the EUR currency should decline in the future, as this projection is realized, resulting in GDP growth again. Will the Goldman FX team (which incidentally once again top ticker the pair with sublime perfection) then adjust its EURUSD target
lower taking account to weaker GDP projection, only to be followed by
the economists raising their GDP, and so far to infinity... Catch 22?

From the Goldman report:

As expected, this week’s ECB meeting didn’t bring much in the way of fresh news. While exchange rate developments are likely to be the topic at this weekend’s IMF meetings, Trichet confined himself to consensual statements. With regard to the  ECB’s exit strategy, it seems that an end to the full allotment policy remains in sight in early 2011, at least for the longer-term operations if not for the (more important) weekly ones.

Our new FX forecasts were published earlier this week, encompassing a further weakening of the Dollar and a trade-weighted Euro appreciation relative to our previous forecast of almost 4%. In line with these changes— and weaker growth in France due to more aggressive fiscal tightening—we have lowered our Euro-zone 2011 GDP forecast to 1.8% from 2.2%, which still leaves us comfortably above consensus. Details are provided in our first focus, together with a reassessment of the situation in Sweden, Norway and Switzerland. Concomitantly, we have also delayed our first ECB rate hike to 2011Q3 from 2011Q2, highlighting four risks to our new central scenario: FX developments, fiscal consolidation, financial sector deleveraging, and the risk of a credit event in the Euro-zone periphery.

Our second focus briefly comments on France’s draft 2011 Budget Law, unveiled last week. It included a lower than initially announced 2010 deficit (7.7% of GDP instead of 8%), and an ambitious 6% target for 2011. As the 2011 consolidation objective looks broadly credible, we have adjusted our 2011 real GDP growth forecast for France from 2.5% to 2.1%. In parallel, the pensions reform is giving rise to social discontent that will need to be monitored closely over the coming weeks.

We remain cautious about fiscal objectives for 2012 and beyond.

Does this mean, Jim O'Neill, that little by little the entire "our BRIC savior" theme, as all surging BRIC currencies slam their own respective economies, will also be destroyed once again.

Full report pdf link.

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Canucklehead's picture

I'm wondering if there is any merit to dusting off the old "United European Investors" concept that worked so well back in 1922.

New York Times Article dated December 15, 1922

Here is a little background information:


HarryWanger's picture

AA just put up strong numbers and increase guidance saying world demand is strong. I guess we don't need that QE2 after all.

RobotTrader's picture

Not only that, JCP just rocketed, now up $2.75.

That stock is now up 11 days in a row.

Teen retailing?  Who knows?  The U.S. consumer cannot be underestimated.

HarryWanger's picture

Some pretty decent retail numbers across the board this morning. Yes, the economy is far from firing on all cylinders but it's also far from being dead. Somehow these folks are getting money to spend and they're not afraid to do so.

homersimpson's picture

Decent retail numbers? For who? For those analysts who had razor-thin expectations? Decent can mean many things in this Bernanke-inspired economy.. like having an "expected" unemployment rate of 9.9% tomorrow would be "decent"..

Gee - clothing stores sold more than usual during a month that would be considered a "back-to-school".. wow. "Decent" retail numbers for something that was expected.

HarryWanger's picture

Yes, pretty decent retail numbers today. Not great but far from being bad. Look, things are from great but nowhere near bad. 

Mr Lennon Hendrix's picture

Hold on loosely, but don't let go!

If you cling to tight, you're gonna lose control!

A spot up from this year?  Hey next year is always better now! Sarc/


Sudden Debt's picture

AAHH!! Just what I needed! A lower euro :)


Miles Kendig's picture

The man-u-brick still can't reach the surface standing on those shouders.

SDRII's picture

AA meets lowered expectations on a $49M tax benefit - pathetic

HarryWanger's picture

But they also said worldwide demand is up substantially.

Gubbmint Cheese's picture

all sorts of people say things - doesn't mean its going to turn out to be true.


slaughterer's picture

Just hope the dollar stays depressed for Alcoa to reep the benefit of that 1% increased worldwide demand next quarter ...

SDRII's picture

Klaus has been talking about chinese demand since he walked in the door. This after talking up the weight ocntent in autos - but that is a 2020 story. As for talking uop demand must be the incremental increases in GDP around the world, right. Of course of course there is a mix shift into jumbo jets to offset the roll off of auto programs.

Listening to what management says is a good way to go bankrupt.

"On a global basis, we see 2008 being another growth year. In our view, aluminum consumption will increase by approximately 8% and given the supply interruptions in China, South Africa and the U.S. to name a few, we see the global demand/supply picture to be generally in balance. The picture varies, however, substantially by industry and region. Let's go through that. " Q2:08, Klaus


FunkyMonkeyBoy's picture

Looking at the 2010 column of data.

All the figures 'old and new' are the same apart from Italy and France which have been revised downwards...

... and yet the overall Euro-zone %yoy new stays at 1.7%. Obviously France and Italy don't have much contribution to the Euro-zone GDP.

It's like a magic.

TraderTimm's picture

There is another scenario, which others have mentioned before. People may be spending because that is the only way they know how to feel better. So they go a bit further into debt, "What the hell, not like I'm going to make a dent in that huge balance, and that is what credit is for!!", and buy up things for short term comfort.

Clothes, shoes, electronics. Stuff that is easily had and best bought in quantity with a bunch of friends so you can all have a "shopping high" together. Retail therapy is not a myth, and I'm not surprised it is reflected in JCP or anyone else's numbers.

Just one question though, when does the piper get paid? Cause' this tune has been going on for a while....


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