What’s Going On Here?Looks like America might be stronger than Goldman Sachs first thought: the investment bank upped its forecast for the country's economic growth over the weekend. What Does This Mean?Goldman’s now forecasting 6.6% growth in 2021 – up from the 5.9% it was predicting in early January, just before Democrats won control of the Senate. And there’s one big reason for the bank’s swift change of heart: the US president-elect’s ambitious economic plan – to spend $1.9 trillion supporting individuals, companies, and infrastructure – is now much more likely to get the go-ahead. And sure, Goldman suspects the proposal will be tweaked along the way, but it still reckons the mooted $1.1 trillion spending on education, public health, and unemployment insurance is a sure thing – and sure to boost economic growth too. Why Should I Care?For markets: Wait for it…
Better economic prospects for the country should have knock-on benefits for its companies: Goldman’s expecting a big uptick in consumers’ disposable income, which should boost the amount they spend on goods and services. The bank also thinks the US Federal Reserve (the Fed) will hold off on hiking interest rates until the second half of 2024, which will make it cheaper for companies to borrow business-boosting cash. But if you’re thinking of buying up stocks while the going’s good, you might want to hold fire: the US stock market recently hit fresh highs, and Goldman – despite feeling good about stocks in the long term – reckons it’s about to dip.
For you personally: Compare and contrast.
Remember to take economic forecasts with a pinch of salt: Goldman’s 6.6% estimate for US growth this year is both the second-highest in an 84-strong survey and well ahead of the 4.1% median. So it’s always worth contrasting more optimistic views with more cautious ones, and weighing up all the opinions on offer to work out which ones you agree with. | 