Market Implications of Growth Deceleration

- "Concern about a slowdown in global economic growth in the second half of 2010 has been one of the distinguishing features of the recent weakness in global markets. These concerns have been sparked by a softer patch of macro data, most notably from the US, but also a moderation in survey data across the world."
- "A 2010H2 slowdown is embedded in our economic forecasts, but it is important to be clear: in several parts of the world, such as China, and indeed globally, economic growth in the first half was running at above-trend levels, so a degree of slowing is both likely and desirable. We estimate that on a qoq annualised basis global growth will slow from an average of about 4.8% in the first half of 2010 to about 3.8% in the second half."
- "Even if one were confident about the better growth prospects ahead, this deceleration in growth momentum is likely to involve a fairly choppy period in asset markets. We find that currently both equity returns and bond yields are tracking at the lower end of the historical distribution of outcomes from previous instances of growth deceleration (that do not end in recessions)."
- "Given the scars from the acute financial and housing crash that preceded this recovery, and that policy is likely to be much more constrained if growth slows much further, it is possible to explain such a performance. And, although we find that a wide range of outcomes are consistent with the kind of growth deceleration that we have in our forecast, this poor starting point suggests that—absent a serious valuation overhang—a move to worse economic outcomes would normally be required for markets to deteriorate significantly."
GoldmanSachs Global Economics Weekly 20100714

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