Goldman continues to pound the table in regards to their counter-consensus U.S. GDP forecast. Consensus forecasts for 2011 GDP growth have been falling, but they still need to come down much further.
However, they’re actually more optimistic than most about growth prospects for Europe and emerging markets:
Goldman Sachs’ Dominic Wilson:
While the consensus forecasts on US and Euro-zone growth have recently moved closer to our own, we remain below consensus on US growth (1.8% vs. 2.4%) and above consensus on the Euro-zone (1.8% vs. 1.4%). Relative to their respective trend growth rates (21⁄2%-3% for the US, around 2% for the Euro- zone), we are significantly more optimistic about prospects for the Euro-zone.
We expect US growth to remain sluggish next year, as the temporary boosts from inventory restocking and fiscal stimulus wanes while final demand remains weak. If our view is correct, 2011 consensus expectations will move significantly over the months to come. The US consensus estimate of 2.4% in October is still 0.6ppts above our forecast and will need to continue its recent downward fall (see “Forecasters Need to Cut GDP Estimates a Lot Further”, US Daily Comment, August 23, 2010).
Conversely, we believe the Euro-zone fundamentals remain relatively stronger. If we are right on Euro- zone growth, the range-bound consensus forecast will need to rise by 0.4ppts from its most recent reading of 1.4%.
For Japan in 2011, we are currently 0.2ppts below the already weak consensus forecast for 1.2% growth next year.
On the other hand, we are much more optimistic on the prospects for EM economies, for which our forecast of 7.4% growth in 2011 exceeds the current consensus of 6.6% by 0.8ppts.
Should Goldman prove correct, then the gulf between U.S. and emerging markets growth will be a massive 5.6%, vs. market expectations of 4.2% currently. That’s likely to pressure even further fund flows into EM.
(Via Goldman Sachs, Global Economics Weekly, Dominic Wilson, 27 October 2010)
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