Goldman Sachs Looks Forward To 2015 With 10 Top Themes

As 2014 crawls towards an end, a team of Goldman Sachs analysts highlight the 10 key elements to their economic forecasts for 2015 and beyond. 1. "A Broadening Recovery:" The U.S. economy continues to firmly recover and will still act as the “primary engine” driving global growth. Europe and Japan's economies will be helped by oil and financial conditions, despite ongoing “shocks.” China remains “the big risk.” 2. "DM Divergence Lives On:" The U.S. Federal Reserve exits asset purchases while the European Central Bank and Bank of Japan maintain easing pressures. De-synchronized monetary exists, according to the analysts who note similarities of U.S.-Germany in the early 1990s. 3. "The New Oil Order:" As oil prices further dip, commodities disinflation will continue. This will result in a positive impact on consumers' disposable income and growth but will be a “stress for producers, with far-reaching effects.” 4. "Lowflation and the Fight Against It:" Inflation trends will continue playing a role in 2015 as disinflationary forces are “likely to remain powerful. U.S. economic growth has been the strongest in 2014 and the moderate rate of wage inflation supports a view that the labor market has plenty of effective slack heading in to 2015. 5. "The Dollar Bull Market:" Continued declines in the EUR/$ rate is the single most important element heading into 2015. The analysts expect “meaningful weakness” in the Japanese yen as well. The analysts note that the U.S. dollar is widely expected to continue showing strength in 2015 and that the “markets already price a significant widening in U.S. policy rates versus many others.” 6. "Fed: Later, Steeper, Further, Calmer:" The analysts are projecting the Fed's first rate hike would come “relatively late,” possibly around September. When the Fed does increase its rates, the Fed will likely to move the funds rate “somewhat faster than the market now expects.” 7. "China's Bumpy Downshift Continues:" China's 2015 picture is “multi-faceted” as markets will focus on month-to-month changes in activity and policy. The analysts add that a secondary theme will be efforts by the government dealing with “excessive build-up of leverage and corporate and local governments and a housing market with large inventory levels.” 8. "EM: More Relief, More Polarisation:" Emerging markets growth in the first half of 2014 was the weakest it has been since the global financial crisis. The analysts expect emerging markets to enter 2015 “in better health” as external imbalances improved in several countries. The analysts add that Venezuela, Ukraine, Argentina and Russia may face “severe” credit issues if commodity prices fall further as concerns over debt repayments will grow. 9. "The Low Vol World and its Challenges:" Despite spikes in volatility, the Volatility Index average for 2014 is the lowest it has been in years. The analysts see equity volatility “modestly higher” on average in 2015 but “not in a material way.” 10. "Living in a Low Return World:" Many asset prices are offering low absolute returns over the coming years. The analysts argue, “Comparing expected real returns from a range of core assets, the earnings yield on equities (and on a vol-adjusted basis, on parts of credit) still makes them more attractive than sovereign bonds on a relative basis.” The analysts are forcing a “relatively modest” nominal return outside Japan and parts of emerging markets.