Sunday, September 12, 2010

Goldman's Own Leading Indicators Are Rolling Over

Goldman's Own Leading Indicators Are Rolling Over

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Goldman’s Global Leading Indicator has continued to decline since we last highlighted it, however, their economists are not overly concerned about the decline. At this point, they appear to be singing a similar tune to the ECRI – growth is on the decline, however, there is not yet a persistent sign that economic weakness will lead to full blown recession:

“So far, while our proprietary global leading indicator, the GLI, saw its peak headline back in the Spring, its level remains high. Moreover, and symptomatic of the world we are facing, despite the significant US disappointments in August, the world has seemingly fared better.”

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Although the United States has shown worrisome signs in recent months Goldman believes the strength in other parts of the world will be enough to help thwart a double dip:

“In China, we expect further evidence of softening GDP growth but, in contrast to the US, this slowdown has been deliberately induced by tightening financial conditions. The evidence in recent weeks suggests that Beijing is moving to reverse these steps now that they have brought inflationary pressures under control. We forecast renewed strength in Chinese GDP growth in 2011, led by domestic demand.

Against a background of reasonable valuations and rather high equity risk premia, we think that once markets realise that the US is not likely to enter a full-blown recession and that China is going to strengthen, equity markets and risky assets in general will rally.”

Source: Goldman Sachs

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