CA NeWs Beta*: "Goldman Sach's 7 Economic Forecasts for World in 2012"

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Friday, December 2, 2011

"Goldman Sach's 7 Economic Forecasts for World in 2012"

 "Goldman Sach's 7 Economic Forecasts for World in 2012"
European Sovereign Debt Crisis: The drawn out sovereign debt crisis across the Atlantic has already rattled investor confidence. The slow pace towards resolution, and the possibility that the Euro could collapse, means the region will continue to weigh on markets. If leaders are not able to come to a consensus on fiscal integration or a way to keep PIIGS nations aloft, it can only lead to further economic deterioration
US Elections:  Goldman believes that ultimately the election will not have tremendous impact on the markets. However, uncertainty in the beginnings of 2012 will roil investors, particularly as debates and plans on issues like federal spending, health care, taxes and financial reform are floated and debated. Already, investors have stomached relatively outrageous proposals to overhaul the American tax code.
US credit Further Down-grade: Unexpectedly, credit rating agencies left the U.S. sovereign credit rating unchanged following the* super committee's failed attempt at cutting $1.2 trillion from the U.S. budget. A downgrade by a second firm, following Standard & Poor's move this summer, would increase borrowing costs on the federal government and impact spending abilities. Fitch Ratings has already moved the country to negative watch, a precursor to a lower rating.

Further Financial Deleveraging: Since the economic crisis began, U.S. financial institutions have deleveraged portfolios by more than 30%. As bank management considers further reductions to leverage — against greater regulatory requirements, slower economic growth, declining home prices, European write downs, illiquidity, or tightening credit — both growth and valuations would be negatively hit. 

US Housing Market Weakness: The depressed U.S. housing market, which kick started the financial crisis in 2007 and 2008, will weigh further on investors. Mostly, markets have predicted that foreclosures will continue to increase as banks begin to process claims they had put on hold. However, if unemployment begins to rise and mortgage holders who were up-to-date on payments begin defaulting, the picture could get all the worse. 

Sharp Higher Movements in Oil: 
Economists at Goldman Sachs are already predicting that global oil prices will continue on their upward trend, driven by increased demand in developing markets, low inventory levels in OECD countries and producer constraints that have limited supply. However, a sharp movement up could stall world growth, similar to how the rally beginning in August 2010 was stymied by oil volatility in February 2011.
Global Recession:  Weak developed economies, a common thread since 2008, have had difficulty posting consistent GDP growth. Instead, the global economy has been buoyed by expansion in markets like China, India and Brazil. Goldman thinks any slowdown there, particularly next to sluggish growth in the U.S. and Europe, would lead investors to price a recession into equity markets, hampering returns.
Extracts from Goldman Sachs Report

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