Tuesday, October 4, 2011

Goldman Sachs Cuts GDP Growth Forecast for 2011 and 2012

GS has cut its global growth forecast for both 2011 and 2012. They now predic recessions in Germany and France and warn that the risk of a contraction in the U.S. is growing. The report is by Bloomberg.

The company says GDP will expand 3.8% this year and 3.5% in 2012 (it was 3.9% and 4.2% originally).

The company also reduced its forecast for earnings growth in Asia excluding Japan.

“The further deterioration in the economic and financial situation in the Euro area has led us to downgrade our global GDP forecast significantly,” “Over the next few quarters, we now expect a mild recession in Germany and France, and a deeper downturn in the Euro periphery.”

As for Europe, GS predicts the Euro region will expand just 0.1% in 2012 and 1.6% for this year.
“The increase in spillovers from the Euro area, primarily via tighter financial conditions, is the primary reason why we have also downgraded our forecasts for the U.S. further,” “We now see the risk of a renewed U.S. recession at around 40 percent.”

The U.S. economy will expand 1.7% in 2011 and 1.4% in 2021 (it was 2%)

“We expect additional easing of monetary policy beyond the ‘Operation Twist’ announced recently, although this may not come until sometime in the first half of 2012,”  “In addition, the market’s focus on changes in the Fed’s guidance on future policies -- including a greater emphasis on the employment part of the ‘dual mandate’ and/or a temporarily higher inflation target -- is likely to intensify.”

Brazil was also cut, to 3.5% in 2011 and 3.3% in 2012, from 3.7% and 3.8%.

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