Goldman: "The Improvement In Global Growth Has Run Its Course"

Tyler Durden's picture

In less than 10 calendar days Goldman Sachs, the bank which has surrounded Donald Trump with its alumni as economic, financial (and political) advisors, has gone for the trifecta, slamming the prospects of Trump's economic policies three times after initially being surprisingly optimistic on the monetary-to-fiscal handoff, and after first warning that the honeymoon is over on February 4, then this past Friday explaining why Trump's policies will be quickly bogged down in Congress, this morning in a note in by Jan Hatzius, the Goldman economist says "the more negative aspects of the Trump agenda—trade and immigration—are coming into clearer view" leading the bank to pare its global growth forecast, concluding that "the improvement in global growth has probably run its course."

Looking at the markets, Goldman observes that they have upgraded their growth outlook significantly since the US election, with the firm's new “sign restrictions” model suggesting an increase in growth expectations in the G4 advanced economies from about 1-1½% during the first half of 2016 to around 2¼% now.

Hatizus states that the recent numbers have validated this improvement, especially in the G4 advanced economies, although we wonder which numbers, considering the bulk of the recent improvement has been in the "soft data", which does not translate into actual economic improvement, but is merely a reflection of sentiment and optimism.


Nonethelsss, Goldman says its G4 current activity indicator (CAI) has picked up from about 1½% in the summer to 2¾% in the last three months. On a global basis, GDP growth in the second half of 2016 climbed to 3½% and the business surveys suggest that the run rate might have risen to more than 4% in early 2017.

The bank then says its analysis suggests that most of this pickup is due to a positive impulse from financial conditions, especially in the advanced economies, and estimates of the DM FCI impulse has swung from about -1 percentage point (pp) in mid-2016 to about +¾pp now.

That's it for the good news, however, as here Goldman writes that "we think that the improvement has now probably run its course. The positive impulse from financial conditions is no longer growing, and, at least in the emerging world, we expect a diminishing impulse as we move through 2017. Consistent with this, the growth data are no longer systematically beating expectations."

As shown in Exhibit 4, the firm's new CAI “innovations” metric—which measures the strength of the data relative to model expectations—has started to level off for the G4 economies after a string of significantly positive readings since September. Although the US data have so far continued to outperform expectations in January, the numbers in the other key advanced economies have been slightly softer than anticipated. Consistent with this, our MAP surprise indices—which focus on the data relative to consensus expectations—have fallen from strongly positive to more neutral readings.


What about the future? It is here that the Trump variables emerged:

Longer term, we still expect a fiscal boost, especially in the US, and this should to some degree compensate for the reduction in the FCI impulse. However, the risks around US policy have also turned somewhat more negative. For one thing, the timeline for passage of a fiscal bill has moved into late 2017 or maybe even early 2018, and the hyper-polarized political climate has reduced whatever slim chance existed for bipartisan cooperation, e.g. with regard to infrastructure spending. Moreover, the more negative aspects of the Trump agenda—trade and immigration—are coming into clearer view.

First, here is Goldman on trade:

On trade, the most likely policies in the near term involve the announcement of a formal process to determine whether China is “manipulating” its currency, and the initiation of trade remedy cases on a number of products. While we are reasonably confident that there will be new restrictions put on some product categories, we are less certain regarding the likelihood of broader tariffs applied to all imports from a given country, or in general. The president has the authority under several laws to impose such tariffs if he chooses, and the Trump transition team was reportedly considering in December as much as a 10% tariff on imports, but our expectation is that near-term activity is likely to be limited to targeted actions with across-the-board tariffs held out as an additional tool that might be used later.

And on immigration:

The other area where the downside risks have grown recently is immigration. President Trump has already announced two executive orders on immigration, and another regarding work-related immigration has been released to the press in draft form but not formally announced. Like many recent executive orders, it is general in nature and lacks detail, but it appears to place an emphasis on enforcement of existing restrictions on such workers, rather than quantitative limits. In the near term, we expect the administration to focus primarily on stricter enforcement of laws related to temporary work visas, but additional actions to limit legal immigration seem likely to be announced over the coming months, in our view.


The potential implications of these restrictions are difficult to estimate. However, as shown in Exhibit 5, net immigration currently contributes an estimated 0.4 percentage points (pp) to US population growth and accounts for most of the projected growth rate of the potential labor force of around ½%. We think that it is plausible that tighter immigration restrictions will reduce this inflow substantially over the next few years.

While the implications of that sentence are quite significant, here is Goldman's forecast of US immigration only an economist could love:

At this point, Goldman reruns its economic scenarios using the Fed's FRB/US macro mode. The chart below shows how these scenarios compare to the “pre-election” baseline that is centered on the FOMC’s September Summary of Economic Projections, and which we profiled back in November.

Goldman's simulations suggest that Trump’s policies could boost growth slightly in 2017 and 2018, but are likely to weigh on growth thereafter if trade and immigration restrictions are enacted. Moreover, the risks around our base case appear asymmetric: a larger fiscal package could boost growth moderately more in the near term, but a more adverse policy mix would likely lead to a significant slowdown, higher inflation, and tighter policy in subsequent years.

What the chart above shows is that there is just one scenario in which US GDP grows from here, even as inflation continues rising, in what, while not explicitly mentioned, is a clear stagflationary forecast.

Goldman's conslusion:

Taken together, our analysis suggests that the improvement in global growth has probably run its course, with sideways moves around the recent 3½% trend the most likely outcome. We think this is consistent with gradual interest rate increases in the United States, where the cycle is most advanced, but ongoing easy policy in other economies, especially the Euro area where plenty of slack remains.

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LawsofPhysics's picture

So, stay long then?

Put these motherfucker's heads on pikes. Nothing changes otherwise.

barndoor's picture

Trump will appoint them all to the Cabinet, where they can't cause too much trouble...

YouJustMadeTheList's picture
YouJustMadeTheList (not verified) barndoor Feb 13, 2017 3:47 PM

"The Improvement In Global Growth Has Run Its Course"


OK, I get it... I'll save you all the parsing.


Goldman is net short & Dennis Gartman is net long. & in 5...4...3...2... Gartman will flip flop to NET SHORT and spill little pieces of candy from his innards all over the yard for all the little children to gobble up.


Until next week, when it happens again in the other direction.

29.5 hours's picture

I am impressed that Goldman could produce a report, with so many of its former executives wandering about the halls of the White House...

Penny Trader's picture

Interesting. I copied this from another post. It is about some analysts from goldman.

You know for six years now I have been coming to the ZH for analysis and good aticles. Love ZH. 


But time after time again, the analysts keep making blatantly incorrect market calls and a lot of people on here have lost a lot of money being overly bearish too soon.

But there are some real analysts out there.

The group of analysts who split off from Goldman about 30 years ago have been nailing markets. 

Their charts on one of their FB pages contains past charts that prove their correctness with market calls.   

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Penny Trader Feb 13, 2017 3:04 PM

Would someone PLEASE sign up for ShepWave's $39/month scam? He desperately wants to move out of his Mom's basement but he lost all of his money using his daily "nailed it again," "time stamped," trading calls. Once he starts earning enough to move out of his Mom's basement maybe he'll stop spamming ZH?

Maybe we can set up a GoFundMe account to raise money for him to move out of his Mom's basement?

He registered the following spam accounts on ZH to promote his scam, giving himself thumbs ups, commenting between his spam accounts, pretending to be multiple people praising ScamWave. - 4Xleverage, AliSONY, Babs.St.Louis, Billy G, Chi Juan, Dr.Carl, Dr.Strangelove , ErikE, FemDayTrader, FRLEPU, Heddgess, hedgesofnight, Irvingm, jasony, John Beau, Josephuskek, KanSass, KC Spike, lostinhedge, MadhyaBharatx, Marilee, MexInvest, MikeM54, Miss Lou, Mon T, P Christmas Carole, Penny Trader, Pinky and the Brain, PUNE, RoBERTAZ, RonnieM, RudolPHDs, SlothHedge, Sonya B59, Stan Your Man, StevieTexie, Timming, TrumpRally, Van G, Virginia Wooolf, wisetrader224, and xantippa

Saneesh's picture

I think their point is that the good analysts have left goldman. 


I find it hard to believe that a company that has been around for over 20 or 30 years would be trying to spam on Zerohedge.  

But I guess anything is possible.  

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Saneesh Feb 13, 2017 6:11 PM

"I think their point..."

LOL! You mean YOUR point. You are one of the ScamWave spam accounts. I'm sorry that you lost everything trading and have to resort to spamming to make a living. Is your Mom feeding you well enough?

yogibear's picture

LOL, trying to get the muppets to short some more so you can do another ramp to make them cover?

Batman11's picture

With populists rising across the West, the problem is obvious.

“It’s the economy stupid”

Even in a globalised world it is very rare that anyone looks around to see how others have done it.

China is today’s success story but that has been unable to make the transition to a developed world economy where there is strong internal demand. If everyone was like China the global economy would collapse through lack of demand.

All the Asian Tigers have done extraordinarily well and in the 1980s Japan looked as though it was going to take over the world. Japan had low inequality and a good welfare state and was able to fully transition into a developed world economy.

China has high inequality and almost no welfare state and so is unable to make the transition to a developed world economy.

Japan, and the other Asian Tigers, achieved this success by channeling lending into productive business and industry and keeping bankers away from their usual financial speculation.

Even our bankers know what they should be doing; they tell us how banks must be saved/re-capitalised to maintain lending into business and industry.

Closer inspection reveals the vast majority of their lending goes into financial speculation and blowing up real estate bubbles around the world. This is the easy way for bankers to make money and with TBTF who cares when it all blows up?

Japan looked as though it was going to take over the world in the 1980s and they decided to leave bankers to their own devices on lending. Japan was now so successful what could possibly go wrong?

The bankers engaged in financial speculation, blew up a real estate bubble, which burst and Japan has never really recovered.

Ensuring bank lending is mainly aimed at the real economy and is not used for financial speculation is the key to economic success.

LawsofPhysics's picture

"Collapse in demand?"?!?!?

Demand for what, be specific!  There are now almost 8 BILLION people on this rock all competing for a high standard of living and all the resources and energy required to make that happen!!!

There is plenty of "demand" for real shit.  Fuck the paper-pushers, grind the fuckers up and put them on the farmland as fertillizer already!

Batman11's picture

2017 – Richest 8 people as wealthy as half of world's population

The people at the top have all the money, that is why there is subdued demand.


LawsofPhysics's picture

"Scarcity" doesn't give a shit about "money". I am a farmer, how much will something cost you if I DO NOT accept your "money" or if what you seek is NOT available? LOL!!!

Regarding the people at the top having all the money, NO SHIT, but then again such "let the majority eat cake" monetary, social, political, and economic experiments have in fact been tried before. We all know how this ends.

hedge accordingly.

Batman11's picture

The real world can be a bit of a shock when you look at it.

It's nothing like those right wing think-tanks tell you it is.



Paul Kersey's picture

"Put these motherfucker's heads on pikes."

That would be a waste of a good pike. However, instead of the annual White House Easter Egg hunt, how about a White House Goldmanite hunt with no bag limit. Then head mounts could be proudly displayed on walls above fireplaces. Hunters would force Goldmanites to trade in their evil tax attorneys for good taxidermists.

Anteater's picture


What is it, can't you see I'm busy with emergency dental work?

[to the dental technician - "Get on with it!"]

Sir, the fires in the WTC seems to have run it's course!


Yes, sir, I'll give the order! Right away, sir!

[to the dental technician - "What did that idiot say? Let's just pull that tooth!"]


Rainman's picture

 So there is no growth without moar and moar and moar growth in cheap credit it

Yen Cross's picture

     GS slogan ~ We specialize in goal seeking~

shizzledizzle's picture

It's not a divergence if it never ever returns parity! It' a brave new world. 

hotrod's picture

Global Growth???  Who Grew??????

barysenter's picture

WW3 is off now? 

AlbertthePudding's picture

The Goldman Sachs is certainly doing its level best to talk down the US economy..they are obviously holding a big short. Hope they fail!