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Global economy is in a temporary slowdown, Goldman Sachs says
(WebFG News) - The global economy is in a "slowdown" phase that typically leads to a move away from risky assets, according to Goldman Sachs.
Data suggests the economy entered a slowdown in the first quarter, Goldman analysts said.
Slowdowns, where growth is strong but weakening, happen every couple of years and typically last about five months. Some lead to recessions but the analysts said they expected the recent soft patch to be short-lived.
Each slowdown coincides with a pullback in risky assets, the Goldman analysts said. Equities and credit typically lose value as the US dollar rises and US rates decline.
Slowdowns should not be a surprise because growth rates cannot accelerate for ever but markets always register a correction when a slowdown happens. These corrections are typically a shift in risk premium rather than a shock to underlying fundamentals.
"We suspect that the recent sell-off in global markets since February constitutes that sort of episode, primarily a risk premium shock, as opposed to a signal that market data forecasts are too optimistic," the analysts said in a note to clients.
There is therefore room for "tactical upside" in some carry trades including emerging market currencies and local rates, particularly South Africa and Brazil. But the Goldman analysts said they preferred equity trades, including emerging markets, for the rest of 2018.