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Economic OutlookConverging HigherMay 2021Jan HatziusGoldman, Sachs & Co.Chief Economist 1 212-902-0394jan.hatzius@gs.comGoldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interestthat could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html.Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
Global GDP: GS vs. ConsensusReal GDP GrowthPercent Changeyoy2021 (f)2022 (f)20192020USEuro 7.02.42.5World2.9-3.36.65.95.04.4GS Consensus GSConsensusNote: All forecasts calculated on calendar year basis. 2020 are realized or GS forecasts whennot yet released. IMF forecasts used for India 2022 consensus when quarters not available inBloomberg.Source: Bloomberg, Goldman Sachs Global Investment Research.Global Investment Research2
Approaching “Herd Immunity”US%100%100Vaccinated Only80Vaccinated and Infected80Infected 21Jun-21Sep-21Dec-210Source: Goldman Sachs Global Investment Research.Global Investment Research3
A Big Easing in Financial ConditionsFCIGS US Financial Conditions IndexFCI105105104104103 /- 2 Standard 951995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 202195The US FCI weights long rates (45.1%), corporate spreads (39.6%), the trade-weighted exchange rate (6.0%), equity prices (4.9%) and short term rates (4.4%)Source: Goldman Sachs Global Investment Research.Global Investment Research4
Massive Fiscal SupportGlobal Investment Research5
Adding Up the Growth ImpulsesEffect on Real GDP Level Relative to Q4 2020PercentPercent884400-4ReopeningFiscal SupportPent-up SavingsEasy Financial bal Investment Research6
We Expect Only Modest OverheatingUS Output Gap Forecast% PotentialGDP2% 2Q32021Q4Q1Q2Q3Q42022Source: Goldman Sachs Global Investment Research.Global Investment Research7
We Are Not Yet Close to Full EmploymentUS Prime Age Employment-Population 5201020152020Source: Goldman Sachs Global Investment Research.Global Investment Research8
Underlying Inflation Remains Subdued% Change, year ago% Change, year agoMeasures of US Underlying Inflationforecasts2.52.51pp expected gap inApril 20212.02.01.51.51.01.0GS Trimmed Core Assuming Sequential Inflation Same as Core PCE0.50.020120.5PCE ex. Food and Energy201420162018202020220.0Source: Goldman Sachs Global Investment Research.Global Investment Research9
Sustained 2% Inflation Will Take a While to ReachPercent change, year ago2.50Percent change, year ago2.50Core PCE Inflation2.25Assumed Threshold for First Fed Rate 7520160.7520172018Note: Dotted lines indicate GS forecast.201920202021202220232024Source: Goldman Sachs Global Investment Research.Global Investment Research10
Our Funds Rate Forecast Is Below Market PricingPercent1.4Fed Funds RatePercent1.4Market Pricing1.21.0GS Weighted AverageGS Baseline1.21.00.80.80.60.60.40.40.20.20.00.0Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23 Jan-24 May-24 Sep-24Source: Goldman Sachs Global Investment Research.Global Investment Research11
Vaccination—Different Timelines, Same EndpointBaseline Vaccination Timeline for First Dose% population80% population80UKUSEU (Big c-2010Jul-21Proxy for vulnerable groups100Source: Goldman Sachs Global Investment Research.Global Investment Research12
Euro Area Is Catching Up with US on Vaccination%%Daily Vaccine Doses Administered (7DMA)1.21.01.2US1.0Euro Area (Big ebSource: Our World in Data, Goldman Sachs Global Investment Research.22-Feb15-Mar5-Apr26-Apr17-MayGlobal Investment Research13
Peak Growth: US in Q2, EA in Q3, Japan in Q4Quarter-over-Quarter, annual rateQuarter-over-Quarter, annual rateGDP Growth, GS Forecast15US1015Euro AreaJapan105500-5-10-5ForecastsQ1Q2Q32021Source: Goldman Sachs Global Investment Research.Q4Q1-102022Global Investment Research14
Dovish Views on the Major Central BanksUS%1.4%five 25bp rate hikesOIS Market-ImpliedGS1.21.01.00.80.8two 25bp rate hikes0.20.00.0Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42022Tapering hints 15bn/meetingtapering2023OIS Market-Implied-0.4-0.6-0.5Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4202120222023PEPP fullPEPPPEPPpurchases rise purchases envelopeuseddiminishto 20bn /wkTaking stockof tapering%%two 25bp rate hikesGS0.10.6one 25bp rate hike0.40.4one 15bp rate hike0.00.00.2-0.1 0.0-0.10.2Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42021-0.2Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q420212022202320240.8OIS Market-Implied0.6GS2024UK%one 25bp rate hikeOIS Market-Implied-0.6APPpurchasesstop0.2 0.80.20.1-0.3GSone 10bp rate hike-0.42024Japan%-0.30.4 -0.50.22021-0.20.6one 25bp rate hike0.4%one 20bp rate hike1.2four 25bp rate hikesthree 25bp rate hikes0.6Euro Area%1.4 -0.2-0.2202220230.02024Expect BoEclarification to shrinkbalance sheet beforeliftoffSource: Goldman Sachs Global Investment Research.Global Investment Research15
But We Expect Longer-term Yields to RisePercentPercentUS 5-Year TIPS Yield 5 Years Forward4433222015-2019 021-1Source: Goldman Sachs Global Investment Research.Global Investment Research16
Disclosure AppendixMay 6, 2021Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the DisclosureAppendix, or go to www.gs.com/research/hedge.html.17
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Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making the ir investment decision. For Reg AC certification and other important disclosures, see the .
