Goldman: Don’t freak out over global slowdown# Stock
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http://www.marketwatch.com/story/goldman-dont-freak-out-over-gl
Published: Oct 22, 2014 12:21 p.m. ET
No major drag on U.S. growth
Shutterstock/Semmick Photo
By
WILLIAM
WATTS
REPORTER
U.S. investors shouldn’t freak out over slowing global economic growth,
says Goldman Sachs.
Worries about the eurozone sliding back into recession as policy makers
struggle to overcome deflation fears and a slowdown in China have
contributed to volatility in U.S. stocks. The Wall Street Journal on
Wednesday features a story on the external threat posed by global growth
woes to the five-year U.S. recovery.
In a note, Goldman economists Jan Hatzius and David Mericle argue that
despite a palpable global growth slowdown (Goldman recently cut its GDP
forecasts for China, Japan and Germany), there are still several reasons for
optimism when it comes to the U.S. economy.
Little drag from non-U.S. slowdown
Goldman Sachs
Goldman says reduced global GDP forecasts would shave less than 0.1
percentage point from U.S. growth from 2015 through the end of 2016.
Remember the big U.S. trade deficit? Since exports account for only 13% of U
.S. GDP, “the arithmetic of trade linkages makes it hard to generate a big
impact unless the weakness outside the U.S. gathers steam,” they write.
According to standard economic assumptions, each 0.5 percentage point
reduction in foreign GDP growth shaves 0.13 percentage point off U.S. GDP
growth, they said. Goldman’s own simulations using the Fed staff’s
econometric model, however, show the impact is likely smaller than that back
-of-the-envelope calculation (see chart above).
They calculate that a 0.5 percentage point reduction in non-U.S. growth
would shave less than 0.1 percentage point off U.S. growth in 2015 through
the end of 2016.
U.S. outperformance not unusual
They also say investors shouldn’t worry that the prospect of U.S.
outperformance, both in terms of GDP growth and the pace of labor market
improvement, is some sort of freak occurrence.
The chart above plots real U.S. GDP growth versus other advanced economies.
“Although we expect the U.S. to grow faster than most other advanced
economies, the gap isn't unusual by historical standards. And we still
expect the emerging economies to outperform the advanced economies as a
group, albeit by less than for most of the last decade,” they write.
So in the end, Hatzius and Mericle say global growth isn’t a major threat
to their expectations for “clearly above-trend” U.S. growth in 2015 and
beyond. But they do offer a couple caveats.
First, a more severe deterioration in the global outlook, such as an
outright European recession, would magnify the impact of the slowdown on the
trade channel. Second, a stronger reaction by U.S. equity and credit
markets to fears of a global slowdown could have a bigger impact on U.S.
growth.
In other words, U.S. outperformance might come down to not succumbing to
fear itself.
Published: Oct 22, 2014 12:21 p.m. ET
No major drag on U.S. growth
Shutterstock/Semmick Photo
By
WILLIAM
WATTS
REPORTER
U.S. investors shouldn’t freak out over slowing global economic growth,
says Goldman Sachs.
Worries about the eurozone sliding back into recession as policy makers
struggle to overcome deflation fears and a slowdown in China have
contributed to volatility in U.S. stocks. The Wall Street Journal on
Wednesday features a story on the external threat posed by global growth
woes to the five-year U.S. recovery.
In a note, Goldman economists Jan Hatzius and David Mericle argue that
despite a palpable global growth slowdown (Goldman recently cut its GDP
forecasts for China, Japan and Germany), there are still several reasons for
optimism when it comes to the U.S. economy.
Little drag from non-U.S. slowdown
Goldman Sachs
Goldman says reduced global GDP forecasts would shave less than 0.1
percentage point from U.S. growth from 2015 through the end of 2016.
Remember the big U.S. trade deficit? Since exports account for only 13% of U
.S. GDP, “the arithmetic of trade linkages makes it hard to generate a big
impact unless the weakness outside the U.S. gathers steam,” they write.
According to standard economic assumptions, each 0.5 percentage point
reduction in foreign GDP growth shaves 0.13 percentage point off U.S. GDP
growth, they said. Goldman’s own simulations using the Fed staff’s
econometric model, however, show the impact is likely smaller than that back
-of-the-envelope calculation (see chart above).
They calculate that a 0.5 percentage point reduction in non-U.S. growth
would shave less than 0.1 percentage point off U.S. growth in 2015 through
the end of 2016.
U.S. outperformance not unusual
They also say investors shouldn’t worry that the prospect of U.S.
outperformance, both in terms of GDP growth and the pace of labor market
improvement, is some sort of freak occurrence.
The chart above plots real U.S. GDP growth versus other advanced economies.
“Although we expect the U.S. to grow faster than most other advanced
economies, the gap isn't unusual by historical standards. And we still
expect the emerging economies to outperform the advanced economies as a
group, albeit by less than for most of the last decade,” they write.
So in the end, Hatzius and Mericle say global growth isn’t a major threat
to their expectations for “clearly above-trend” U.S. growth in 2015 and
beyond. But they do offer a couple caveats.
First, a more severe deterioration in the global outlook, such as an
outright European recession, would magnify the impact of the slowdown on the
trade channel. Second, a stronger reaction by U.S. equity and credit
markets to fears of a global slowdown could have a bigger impact on U.S.
growth.
In other words, U.S. outperformance might come down to not succumbing to
fear itself.
