Goldman Sachs says 2020 global recession unlikely

Goldman Sachs says 2020 global recession unlikely

Moderate gains foreseen in 2020

Ashley: Chinese growth softening
Ashley: Chinese growth softening

Despite the manufacturing sector's troubles and Sino-US trade tensions, the prospects of a global economic recession occurring next year are low as fundamentals drivers of growth in major economies still remain healthy, says Goldman Sachs Asset Management.

But moderate growth in major economies is expected to continue, said James Ashley, head of the international market strategy team at Goldman Sachs Asset Management.

"For the three key pillars of the global economy -- the US, Europe and China -- we are looking at a modest deceleration in economic growth for the US in 2020 and a modest deceleration to below 6% for China. Europe will have broadly stable growth, somewhere just over 1-1.25%," said Mr Ashley.

The global economy looks poised to slow moderately from 3.8% in 2018 to 3.5% in 2019, led by deceleration in the US and further softening in China, said Goldman Sachs Economics Research.

Global GDP growth is expected to arrive at 3.6% in 2020.

The risk of a global recession is likely to rise as more developed market economies move beyond full employment.

"However, even in subsequent years recession is not our base case. Financial imbalances still look very limited, and the flatter and more anchored Phillips curve has reduced the need for central banks to reverse an overshooting of full employment quickly," said Goldman Sachs.

Although the US's manufacturing sector is experiencing difficulty as a result of the tit-for-tat tariffs with China, other economic indicators suggest that US economic growth has not lost its momentum, said Mr Ashley.

"The fundamental driver of the US economy is the household sector and we see continued consumption growth there," he said.

Rising nominal income, low debt-servicing cost, elevated consumer confidence and the near 50-year-low unemployment rate point towards ongoing expansion of US GDP growth, he said.

The European Central Bank is not expected to begin interest rate normalisation any time soon to shore up economic growth impetus in the euro zone, while China's GDP growth in 2020 is forecast at 5.5-6%, with a judicious use of fiscal, monetary and credit policies identified as the main drivers of growth, said Mr Ashley.

"We are not expecting a recession next year, but a moderate expansion of economic growth," he said.

"We expect volatility to increase, keeping investors in the market and not rotating into fixed income securities and certainly not cash at this stage."

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