Goldman Sachs pegs H2CY16 global economic growth at 3.5%

Brexit and China among top risks that could dent growth, it says

Goldman Sachs has pegged the global economic growth in the remaining half of calendar year 2016 (H2CY16) at 3% - 3.5%, with more downside risks due to Brexit. The other significant risk to global growth it foresees is from China - where it believes growth could decelerate going ahead.

Though the global research house expects a gradual deceleration in Chinese growth rates, it expects some stabilisation return to growth rates in commodity-dependant economies going ahead. As regards India, Goldman Sachs had pegged the GDP (gross domestic product) growth at 7.9% in the current financial year and at 8.1% in FY18 in an earlier report in June.

"We have taken down our growth forecasts for the Euro and the US somewhat, but we are still looking at 1.25% in the euro area and about 2% in the US. We expect gradual deceleration of growth in China, but at the same time, we are also seeing some stabilisation in some of the more commodity-dependant economies such as Brazil, and to some degree Russia," points out Jan Hatzius, chief economist at Goldman Sachs.

"I think the main global risks are basically twofold: one is that the impact of Brexit - especially on the Euro area - ends up being bigger. The main issue to be concerned about is political and institutional contagion. The other significant risk is still China. We still think that China is still decelerating economy. We did see somewhat better numbers for much of the first half of the year, but it seems like the improvement has stopped. We think the underlying trend is still downward on growth," he adds.

In this backdrop, Goldman Sachs has pushed back its expectation of a rate hike by the US Federal Reserve (US Fed) to the December 2016 meeting. As regards US, it expects the pace of growth to be better going ahead as compared to the last three - four quarters, mainly because there was quite a sizeable drag from financial conditions, especially the appreciation of the US dollar (USD) from mid-2014 to mid-2015. This, according to Goldman Sachs, bring down growth quite significantly.

"We have taken down our growth forecasts for the euro and the US somewhat, but we are still looking at 1.25% in the euro area and about 2% in the US," Hatzius says.