Research Summary
The report discusses the global decline in inflation, leading to expectations of aggressive interest rate cuts by major central banks. It provides detailed forecasts for the US, Europe, the UK, and China, and highlights the potential impact on growth, employment, and financial markets. The report also outlines Goldman Sachs’ compliance with various international regulations and its approach to research and client service.
Key Takeaways
Global Inflation and Interest Rate Cuts
- Declining Inflation: The report notes a significant global decline in inflation, with core inflation averaging 2.2% over the past three months and dropping to 1.3% in November for a group of economies including the G10 (excluding Japan) and EM early hikers.
- Interest Rate Cuts: This decrease in inflation has led to expectations of earlier and more aggressive interest rate cuts by major Developed Market (DM) central banks, including the US Federal Reserve, the European Central Bank, and the Bank of England.
US Economic Forecast
- Rate Cuts and Growth: Goldman Sachs predicts at least three consecutive 25 basis point cuts in March, May, and June, followed by two additional quarterly cuts in the second half of 2024, and three more in 2025, ultimately reducing the funds rate to 3¼-3½% by September 2025. Real GDP in the US is expected to grow by 2.0% in 2024, with the unemployment rate predicted to decrease to 3.6% by the end of 2024.
European and UK Economic Forecast
- ECB and BoE Rate Cuts: The European Central Bank (ECB) is expected to start rate cuts in April, leading to a reduction from 4% to 2.25% by early 2025. In the UK, rate cuts are anticipated to begin in June, bringing the Bank Rate down from 5.25% to 3% by mid-2025.
China’s Economic Outlook
- Disinflation and GDP Growth: China’s CPI inflation reported lower than expected in November, with core inflation remaining under 1% year-on-year. Despite a pickup in exports and industrial activity in November, domestic indicators such as retail sales and property prices in China continue to show weakness. Policymakers in China are expected to implement gradual easing measures, but these are not anticipated to be enough to counteract the forecasted GDP growth deceleration from 5.3% in 2023 to 4.8% in 2024.
Actionable Insights
- Monitor Central Bank Decisions: Investors should closely watch the decisions of major central banks, as these will significantly impact global financial markets. The expected aggressive rate cuts could influence investment strategies and portfolio allocations.
- Assess Impact on Growth and Employment: The report’s forecasts for growth and employment in the US, Europe, the UK, and China provide valuable insights for assessing potential investment opportunities. Investors should consider how these macroeconomic trends might affect different sectors and asset classes.
- Consider Inflation Trends: The global trend of declining inflation could have significant implications for various investment strategies. Investors should consider how this trend might impact real returns and the relative attractiveness of different asset classes.
