Goldman Sachs sent a note to clients on Tuesday reassuring them that, no, we’re not heading for a global recession.
Investors no doubt need reassuring after the global rout of stock markets around the world yesterday, kicked off by “Black Monday” in China.
But there are still concerns that protracted stock market collapse and slowing Chinese growth could have a knock-on effect for the global economy.
Analyst Peter Oppenheimer & his team at Goldman say not to worry, writing this morning: “The drop in commodity prices during the past year and recent economic and FX weakness in China and other emerging markets will not tip the global economy into recession, in our view.”
Goldman’s see the recent Chinese stock market collapse as a manifestation of fears that the recent collapse in commodity and oil prices was a signal of slowing Chinese growth.
China has long been the world’s biggest metal consumer thanks to a 10-year construction boom — if metal and fuel prices are falling, surely that’s a sign the boom is coming to a speedy end?
And if that’s true, then it would spell disaster for exporters around the world.
Not so, say Goldman. They put the commodity price slump down to oversupply rather than falling demand. Here’s Oppenheimer:
Our commodity strategists have long argued that the negative price moves in oil and commodities were primarily a reflection of excess supply as opposed to inadequate demand. For this reason, we see a meaningful risk that markets are over-interpreting the collapse of oil and commodity prices as a negative growth signal.
[We] believe DM [developed market] growth (at least in the US and Europe) is fundamentally sound, will not be very sensitive to China and EM [emerging market] weakness, and will get a decent offsetting boost from even lower oil prices. While there may be risks to the downside based on confidence effects, and while inflation may be lower as a result, we remain of the view that a global recession is very unlikely.
Oppenheimer does concede, however, that in markets the perception can be more important than the reality and says the biggest threat to global growth could be the fear of a Chinese slowdown, whether or not such a phenomenon would affect growth.
The more scared investors are, the less likely they are to take risks, and that could freeze stock markets and company activity. But, ultimately this won’t crash growth according to Goldman and China’s problems are pretty well limited to just China.
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