20151118-高盛-A_Stealthy_Path_to_Full_Employment_15页_487kb

Summary of "A Stealthy Path to Full Employment" Report

Core Content

This report outlines the global economic outlook for 2016-2019, focusing on GDP growth, inflation trends, labor market recovery, and monetary policy divergence among major economies. It emphasizes that while global GDP growth is expected to modestly increase, the recovery is not as robust as previously anticipated. The labor market, however, shows a stronger recovery than GDP, with the G7 unemployment rates falling faster than in any comparable period since the 1970s.

Main Points

• Global GDP Growth:
  Global GDP growth is expected to rise slightly from 3.2% in 2015 to 3.5% in 2016. This improvement is mainly due to stabilization in EM economies, with modest growth in Europe and Japan and a slight slowdown in the US and China.

• Labor Market Recovery:
  The labor market is considered a more reliable indicator of cyclical recovery than GDP, especially in economies with lower potential growth. Unemployment in the G7 has fallen significantly, and the average unemployment rate has dropped faster than any prior period. The decline in unemployment is seen as a reliable indicator of reduced labor market slack, even though it is still higher than pre-crisis levels.

• Inflation Outlook:
  Headline inflation is expected to rebound to more normal levels, from 0.3% in 2015 to 1.4% in 2016. Core inflation, which is more relevant for central bank decisions, is expected to rise gradually but remain below targets in most advanced economies, particularly the Euro area and Japan.

• Monetary Policy Divergence:
  Central banks in the US and UK are likely to begin tightening monetary policy, while the Euro area and Japan are expected to continue easing. This divergence is expected to lead to dollar appreciation, which could redistribute demand from the US to other economies, potentially benefiting those with weaker recoveries.

• Impact of Dollar Appreciation:
  A stronger dollar is seen as a positive development for global rebalancing, but it poses risks for China due to its trade-weighted currency peg. The report highlights that further dollar appreciation could slow Chinese growth and exacerbate current account imbalances, though this may be offset by fiscal adjustments in the Euro area.

• China's Economic Challenges:
  China's growth is expected to remain slightly below consensus due to ongoing domestic deleveraging and the negative impact of the dollar peg. The report suggests that China's growth could face further deceleration, with significant spillover effects on global economies, particularly Japan.

• Risks Identified:
  The report identifies two main risks: a sharp dollar appreciation and a larger slowdown in China. Both scenarios could have severe implications for global growth, especially for China, due to its reliance on exports and the impact of the dollar peg.

• Modeling Approach:
  A global economic model is used to analyze the potential spillover effects of changes in China and the US dollar. The model incorporates variables such as unemployment, commodity prices, and exchange rates to project the impact on GDP and inflation.

Key Information

• GDP Forecasts:

  • US: 2.2% in 2016 (slight deceleration)
  • Japan: 1.0% in 2016 (moderate acceleration)
  • Euro Area: 1.7% in 2016 (small acceleration)
  • China: 6.4% in 2016 (slower growth than consensus)
  • Emerging Markets: Expected to grow at 4.9% in 2016, with Russia rebounding and Brazil slowing its contraction.

• Inflation Forecasts:

  • US: 1.8% in 2016
  • Japan: 0.3% in 2016
  • Euro Area: 1.1% in 2016
  • China: 1.5% in 2016
  • G7 Core Inflation: Expected to rise gradually, though still below central bank targets in most cases.

• Monetary Policy Outlook:

  • US and UK central banks are likely to tighten policy, with the Fed expected to raise rates by 25bp in December and further by 75-100bp in 2016.
  • Euro area and Japan are expected to continue easing, which will keep interest rate differentials wide and support dollar appreciation.

• Dollar Appreciation Impact:

  • A 10% dollar appreciation could slow US growth by 0.5pp and Chinese growth by nearly 1pp.
  • It could boost growth in the Euro area and Japan by 0.2-0.3pp.
  • The dollar's strength may worsen China's growth outlook due to its peg to the US currency.

• China's Growth Outlook:

  • China's growth is expected to be slightly below consensus due to domestic and external pressures.
  • Proprietary indicators suggest growth is about 1-2pp below official GDP numbers.
  • A 1pp slowdown in domestic demand and a 5% RMB devaluation could lead to significant global spillovers.

• Market Outlook:

  • The report concludes with a relatively benign outlook for 2016, with higher bond yields, a stronger dollar, and positive returns on equity and credit outside the US.
  • A classic EM crisis is not expected, as most have made progress in adjusting their balance sheets.

Conclusion

The report suggests that while global economic recovery is slow and uneven, the labor market is showing signs of improvement, particularly in the G7. The gradual rise in core inflation and the expected tightening of US monetary policy are seen as positive developments, though they may lead to dollar appreciation and potential risks for China. The overall outlook is cautiously optimistic, with a focus on the steady progress of the global economy toward full employment and more normal inflation levels.