US economy, markets to return to pre-2008 conditions by 2024: Goldman Sachs

  • Goldman Sachs said the economy and investment landscape are returning to pre-2008 conditions.
  • Strategists said the global economy is beating expectations in 2023 and inflation should continue.
  • Conditions are normalizing as very low rates end

Goldman Sachs sees a 15% recession probability in the coming year, and as the macro landscape returns to pre-2008 conditions, the bank expects a few tailwinds to support global growth and investment.

In a note to clients this week titled „The hard part is over,” Goldman strategists led by Jan Hatzius highlighted that economies around the world have outpaced even optimistic expectations by 2023.

„2024 should confirm the view that the global economy has escaped the post-GFC environment of low inflation, zero policy rates and negative real yields,” Hutchesus said. „After the GFC, there was often what felt like an inevitable move towards lower global yields and lower inflation – 'money trap’ and 'secular stagnation’ being the buzzwords of the decade.”

Policymakers have called an end to the era of easy money, and the transition to higher rates has so far been rocky, illustrated by high stock market volatility, rapid tightening of financial conditions and the rise of „zombie” firms. The stomach goes up.

According to strategists, the big question is whether a return to the pre-GFC rate background is a balance. „The answer is more likely to be yes in the US than elsewhere, particularly in Europe, where sovereign pressure may re-emerge.”

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The central bank pulled interest rates close to zero after the Great Financial Crisis, but a return to a high-rate environment could spell trouble for heavily indebted firms and broader business conditions.

Other Wall Street forecasters have warned that strained debt and strained balance sheets will emerge in the coming months as tight financial conditions bite. Charles Schwab estimates that defaults will peak between now and the first quarter of 2024.

Market boom

Goldman expects rates, debt, stocks and commodities to outperform cash by 2024.

„Change [from the easy money era] „The upside of this 'Great Escape’ has been flat, but the investment climate now looks more normal than at any time since the pre-GFC era, and real expected returns are now firmly positive,” Hutchesus said.

According to Goldman Sachs, non-cash assets should outnumber cash by 2024

According to Goldman Sachs, non-cash assets will outnumber cash by 2024

Goldman Sachs

inflammation It should continue to decline through 2024, real household income growth should pick up, manufacturing activity should rebound, and central banks should be more prepared to cut rates, according to the firm’s view.

„We don’t think the last mile of inflation will be particularly difficult,” Hatchius said. „First, the improvement in the supply-demand balance in the commodities sector — measured for example by supplier delivery lags — is now largely over, and the impact of core commodity inflation is still unfolding and will continue through much of 2024.”

Despite their relative optimism, Goldman said strategists see „more risks than normal” for 2024.

Even if inflation continues at a steady clip, the Fed and other central banks may keep interest rates higher for longer than expected.

Goldman Sachs Weighted Fed Funds Forecast, Recession Outlook

Goldman Sachs says its probability-weighted fed funds forecast is below its model baseline forecast

Goldman Sachs

There are also downside risks surrounding the development, the bank said. A recovery in global manufacturing could be delayed, especially if higher prices compared to sales below 2019 levels prompt companies to normalize inventory levels.

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