Goldman Sachs : Expect the Stagnant Growth to Continue

It looks like the fun times are set to continue.  According to a recent Goldman Sachs analyst report growth in the USA is expected to remain just barely above the growth line at 1.5% in Q1 2013.  This is in-line with my recent outlook forecast  and dangerous water to be treading for the anti-recession believers.  The fiscal cliff could easily tip the USA from being the best house in a bad neighborhood to the worst house in the neighborhood.  Stay tuned as we near the year-end.  Here’s more from Goldman (via Zero Hedge):

“We forecast a renewed slowdown in growth to 1½% in Q1, despite the healing in the private sector and renewed monetary easing.

In addition, the risks are almost exclusively on the downside of this “not so good” fiscal scenario. The probability that the upper-income Bush tax cuts and emergency unemployment legislation will expire, as well as that of a temporary hit from the entire cliff, has clearly risen in recent months. Adding these sources of restraint would take the overall fiscal drag to nearly 2 percentage points in early 2013, and more if the uncertainty effects are large. A sharper slowdown in GDP growth to 1% or less would likely result.

The tail risk is that Congress will fail to agree on any type of resolution for a more extended period, and the economy is hit with both the sequester and much bigger tax increases. While the impact of such a failure—especially those related to confidence and financial conditions—is harder to quantify, just the direct fiscal effect would imply a GDP growth hit of around 4 percentage points in early 2013, and likely a recession.”


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Rich

    A -4% GDP hit would be huge !…but, they’re are so many special interests deeply entwined in the sequestration, tax cut extension, unemployment imbroglio coupled with the Presidential/congressional elections….and with time growing increasingly short. It’s highly unlikely all this can be resolved in a manner that won’t introduce major disruption to a fragile national/international economy.

  • Mikael Olsson

    The question is also: What does Goldman Sachs want? They have major influence in the direction that the economy will take, whether they want to admit it or not. If they just want to keep scooping up money, then expect flat growth. If they want to influence investments towards the real economy, other things will happen.

  • Boston Larry

    The best chance of avoiding the fiscal cliff is a decisive win by one of the two presidential candidates. Legislators will likely follow the lead of voters and resolve accordingly. However, no pun intended, if the Nov 6 election is a cliffhanger, and Congress too, regardless of the winner, legislators are more likely to stand their ground and hold out for months before resolving the fiscal standoff. Treasury yields are low due to the rising risk of recession caused by going over the fiscal cliff.

  • Mikael Olsson

    Um.. don’t perceived risks normally drive yields UP?

  • Pierce Inverarity

    Depends on the risk. If it’s corporate profit risk, money is going to fly to bonds instead of equities.

  • Mikael Olsson

    Good point. I was staring at just the bonds. Thanks.

  • Boston Larry

    Today corporate bond prices are up, yields down, on slow growth warning from the IMF. Treasury bonds are not doing as well as corporates, probably due to the upcoming fiscal cliff and possible US downgrade.

  • Geoff

    Larry, Treasuries are doing extremely well today (the long bond is up around $1.00). Corporates not so much as spreads are wider, meaning they are underperforming Treasuries. This is not surprising given that equities are down. Corporate spreads tend to be correlated with equity prices (negatively).