Jim O’Neill, chairman of Goldman Sachs Asset Management, is sticking by his contrarian view of world markets. His latest analysis, outlined in a recent commentary entitled “2012: Not a Repeat of 2010 and 2011,” stresses the above-consensus take on global growth.
“While some data has raised questions about the state of the global economy, China appears to be showing signs of improving,” O’Neill (left) writes. “In addition, global financial conditions remain at very supportive levels. This suggests to us that the tentative weakness in the global industrial activity data may prove to be temporary.”
Goldman Sachs has forecast global growth of about 3.6% for this year, compared with the overall consensus of 3.5%, and 4.1% for next (in line with consensus). For the United States, the group has a 2.5% GDP-growth estimate for 2012-'13 versus consensus for 2012 of 2.3%.
“Our U.S. growth forecast was one of our most significant out-of-consensus calls this year. We started the year with a real growth forecast of 2.5% vs. consensus of 2.1% which has since moved up to 2.3%,” says O’Neill. “The recent weakness in the labor market data has raised questions about our forecast, but we believe the softness will not continue for long.”
What fundamentals factors are supporting the U.S. growth story? The Goldman Sachs executive points to low gas prices, a more competitive U.S. manufacturing sector and an improving housing market. All areas in 2010 and 2011 that wobbled in the late spring and summer of those two years and contributed to a slow down in growth after Q4 and Q1 build up both times.
O’Neil and his colleagues believe that it “is increasingly likely that China could deliver an upside surprise to our current forecast of 8.2% for this year. We might revise this number in light of lower inflation and further policy easing steps.”
He is optimistic about China’s ability to “rebalance towards higher-quality growth driven by private consumption. While this might bring more volatility, if the transition to a different growth model is sustained, the bullish case for Chinese equities may become even stronger,” O’Neil notes.
In both China and Russia, the current political transitions are “overall positive developments” in Goldman Sach’s view.
The group is “most positive on China, given the pessimism that has surrounded the country’s growth story so far this year,” he says of its equity markets.