Photo: Courtesy Sotheby’s
In a note out this evening, Goldman’s Dominic Wilson touches on something that’s really important:A number of factors reinforce our desire to be more cautious about the data in the near term. First, our US forecast has continued to embody a relatively flat 2%-ish type GDP growth trajectory, so the notion that acceleration is now coming to an end is consistent with that forecast view. Second, we have become more confident that the weather has played an important role in some earlier data strength. The payback here may have begun, but there is probably more ahead. There is also rising focus on the US “fiscal cliff” at the end of this year, as Alec Phillips has described. Third, in the current post-bust setting, even modest slowing in growth feels more dangerous than normal. Fiscal policy is consolidating and conventional monetary policy has been exhausted in many places. And with plenty of leverage in parts of the global economy, slowing growth quickly also raises questions about debt sustainability in places. As a result, financial risks can re-emerge more quickly than normal as growth slows.
Indeed, it seems hard to remember the good old days, when an economic downturn didn’t bring with it fears of bank failures or even sovereign failures.