goldman sachs economic outlook 2023 pdf

Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. Issuers that took advantage of historically low borrowing costs to be overly acquisitive may find themselves overly stressed while those with experienced management teams and strong balance sheets should be better positioned to navigate the sectors challenges. Municipal mutual funds witnessed their largest ever annual outflows in 2022over $140BN and shattered the previous record set in 2013. Over the past couple of years, a confluence of factorsa global pandemic, surging inflation, war in Europe, aggressive monetary tightening and a cost-of-living crisishas rocked the boat for investors like never before. Last week, equity markets got off to a strong start, with the US Telecom, Consumer Discretionary, and Real Estate sectors leading the way. Lastly, regulation comes with no surprise given the growing nature of ESG bonds and investor demand. We expect munis to continue to show strength into 2023, however revenue velocity is expected to moderate along with the economy. The Fed has the tricky task of trying to cool red-hot inflation without sending the US economy into a slowdown. Goldman Sachs & Co. LLC is registered with the Securities and Exchange Commission (SEC) as both a broker-dealer and an investment adviser and is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). The bank's economists forecast US GDP will expand by 2.4% this year, down from an estimate . An Outcome is Income. 10-year Treasury yields ended the year around 3.90%. This growth, along with federal COVID related funds, contributed to multi-year revenue and expense expansion. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation. With the easing of Insight and analysis of top stories from our award winning magazine "Bloomberg Businessweek". Past performance does not guarantee future results, which may vary. Looking at 2023, Goldman foresees the euro zone growing by 2.5% and the U.S. by 2.2%. Home inventory levels remain low and the leverage incorporated into dirt bond transactions nowadays is materially lower than those that were originated prior to the Great Financial Crisis (2007-2008). All investments involve risk including possible loss of principal. And the decisions they make have huge consequences, not just for the bottom line, but for communities, cities, even entire countries. Stay on top of the latest market developments, key themes, and investment ideas affecting your portfolio and practices. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. Individual portfolio management teams for Goldman Sachs Asset Management may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein. All rights reserved. FILE PHOTO: Illustration shows destroyed SVB (Silicon Valley Bank) logo and UK flag. 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Someone completing an unemployment benefits form. We would expect these ratios to be on the lower end versus recent history given the supportive technical backdrop. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. Heightened volatility was driven by persistently high levels of inflation not seen in decades, compelling the Federal Reserve to embark on a historic monetary policy tightening campaign and pushing the Fed Funds Rate from 0.25% to 4.50%1 (As of December 14, 2022). Over the last week, Silvergate Bank, Silicon Valley Bank, and Signature Bank have all closed down, and other financial institutions including First Republic and Credit Suisse are facing turmoil. Date of First Use: January 13, 2023. It remains difficult to predict the overall macroeconomic impact of this slowdown in lending. Here are their 16 best quotes about the investor, Berkshire Hathaway's ownership, and navigating the pandemic and inflation. Sources: Labeled Issuance: Bloomberg. Michael M. Santiago / Staff / Getty Images. (Reuters) -Silicon Valley Bank's UK arm handed out over 15 million pounds ($18 million) in bonuses days after its rescue deal this week by HSBC, Sky News reported on Saturday. Further, given the continued strong credit backdrop, an appropriately sized allocation to lower-rated municipal credits may further enhance returns during the coming year. High yield municipal bonds generated returns of -13.10%, more than 450bps worse than its investment grade (-8.53%) counterparts in 2022. Please. The central bank's aim is to have just enough job growth to keep the economy running well without contributing to rising inflation. Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. Will the US enter a recession or avoid it? By clicking Sign up, you agree to receive marketing emails from Insider S&P upgraded 2.5 times as many issuers as downgrades. Citing the "apparent demise" of Build Back Better, Goldman. UBS Group AG is asking the Swiss government for a backstop if it were to buy Credit Suisse Group AG , Bloomberg News reported on Saturday. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. The Federal Reserve building in Washington. A loss of principal may occur. Additionally, constant interest rate volatility and yield spikes caused by economic data releases and monetary policy actions added to issuers apprehension when deciding whether to come to the market. These forecasts are subject to high levels of uncertainty that may affect actual performance. Economic and market forecasts presented herein are for informational purposes as of the date of December 31, 2021. Seizing the opportunities these changes may create calls for a new approach rooted in a more holistic view of asset allocation with increased attention to risk. This past year was filled with headlines regarding ESG Investing (Environmental, Social & Governance), dominated by the growing politicization of the acronym as well as concerns around energy security following conflicts abroad. While an adviser seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may deviate from those of the benchmark. Past performance does not guarantee future results, which may vary. As of December 31, 2022. Supply is likely to come in much lower than in recent history as refinancing volumes slow. Goldman Sachs has again lowered its forecast for US economic growth in 2022, to reflect tighter financial conditions as the Federal Reserve aggressively hikes interest rates. Past performance is not indicative of future results which may vary. 2023 US Economic Outlook: Approaching a Soft Landing . Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you may disclose to any person the US federal and state income tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind. 2023 Goldman Sachs. Greenwashing refers to falsely marketing a project as environmentally friendly, often to lure in additional investor demand. Climate-related disasters continue to intensify, and in 2022 alone there have been 15 weather disaster events in the US with losses exceeding $1bn each, compared to the 1980-2021 annual average of only 7.7 events.2 One of the largest was hurricane Ian in Southwest Florida, which caused damages estimated north of $30bn. S&P 500 forecast: 4,000 (5% gain) Stock market outlook: Stock returns, earnings, and valuations will be little changed in 2023, according to Goldman Sachs. The views expressed herein are as of December 31, 2022 and subject to change in the future. Any mention of an investment decision is intended only to illustrate our investment approach and/or strategy, and is not indicative of the performance of our strategy as a whole. 2 min read. Goldman Sachs cut its outlook for economic growth this year, pointing to troubles in the banking sector. We evaluate the key arguments in favor of and against a US recession, and note that although a recession is possible, it is not inevitable. Please see additional disclosures at the end of this presentation. 4 Bloomberg, BofA Global Research, NIC MAP Data. Future investments may or may not be profitable. Lastly, investors will be watching how much of the higher education sector manages to navigate its way through enrollment declines and endowment investment losses. Sources: Goldman Sachs Asset Management, US Bureau of Economic Analysis. Let High Current Yields Carry Your Bond Portfolio. "We therefore expect that the recent tightening in financial conditions will persistin part because we think the Fed will deliver on what is pricedand therefore see a growth downgrade as appropriate," they added. Nonetheless, our analysis shows that our two key investment themes remain valid: US Preeminence and Staying Invested. The Wall Street firm's new outlook stems from "increased near-term . To say 2022 was a tumultuous year is an understatement. It is not research and is not intended as such. Put simply, we believe 2023 is the year for investors to bring on bonds (BOB)., Strong economic and job growth bolstered muni credit in 2022. Powered and implemented byFactSet Digital Solutions. We look forward to beginning a conversation to help you achieve your objectives and make the impact you desire. dislocations and started to also include an element of textbook overheating in which Additionally, in May the SEC announced amendments to two rules, looking to both standardize disclosure and expand naming consistency of funds with ESG characteristics. "A failure to pass BBB has negative growth implications," Goldman Sachs economists, led by Jan Hatzius, said in the research report. Goldman Sachs & Co. LLC is registered with the Securities and Exchange Commission (SEC) as both a broker-dealer and an investment adviser and is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). Goldman Sachs has cut its recommendation on exposure to European bank debt to neutral from overweight, saying a lack of clarity on Credit Suisse's CSGN future path would put pressure on the broader sector in the region.. Credit Suisse was thrown a $54 billion lifeline by the Swiss central bank on Thursday to shore up liquidity after a slump in its shares and bonds intensified fears about a . The bank said Sunday it now expects US gross domestic product growth to grow by 2.4% for the year, compared with its prior estimate of 2.6%. The value of investments and the income derived from investments will fluctuate and can go down as well as up. Mar 17, 2023 (The Expresswire) -- The Diagnostic Hammer market is a highly competitive and ever-evolving landscape that requires businesses to stay ahead of. "We now think the rate hikes that are currently priced into financial conditions are in the ballpark of what is ultimately needed to restore balance to the labor market and cool wage and price pressures," economists at Goldman Sachs led by Jan Hatzius said in a note. Goldman Sachs is predicting zero earnings growth in 2023, with stocks ending the next year essentially flat. (Company Number: 198502165W); in Dubai by Goldman Sachs International, in Germany by Goldman Sachs Bank Europe SE; in Switzerland by Goldman Sachs Bank AG; in Spain by Goldman Sachs Bank Europe SE, Sucursal en Espaa; in Italy by Goldman Sachs Bank Europe SE, Succursale Italia; and in France by Goldman Sachs Bank Europe SE Succursale de Paris. Looking ahead, the Fed Funds rate is expected to peak at 5% in mid-2023, with the market pricing in a possibility of rate cuts towards the end of the year. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources. No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient, without Goldman Sachs prior written consent. Source: Goldman Sachs Global Investment Research 1 *Extrapolated before Dec 2000 using the newspaper help-wanted index based on methodology by Regis Barnichon, San Francisco Fed. How It Works, Benefits, and Risks, Macroeconomics Definition, History, and Schools of Thought, Gross Domestic Product (GDP): Formula and How to Use It. The Fed's rate hikes are in the ballpark of what's ultimately needed to cool wage and price pressures, they said. Source: Goldman Sachs Asset Management, Macrobond. The pace of rating downgrades and distressed situations in the healthcare space have begun to tick up as operating margins have been pressured and cash reserves previously bolstered by COVID-19 stimulus monies and investment market outperformance have eroded. Due to this, the primary market was muted during weeks where there was a closely watched economic data point release or a Federal Reserve monetary policy meeting. Small cap company stocks involve greater risks than those customarily associated with larger companies. Analysts at the firm now expect year-over-year growth of 1.2% for the quarter, down 0.3 percentage points from their previous estimate. Goldman Sachs expects worse UK recession in 2023 Bank tips economy to shrink 1% in downgraded forecast, but also predicts lower inflation and interest rates Gwyn Topham and Phillip Inman Sun. The Fed implemented seventeen 25bp rate increases in 2022 catapulting the Fed Funds target rate from 0.25% to 4.50%. They noted the evolving nature of ESG practices, the challenges within the municipal market, and potential opportunities to improve transparency as the industry moves forward. Past performance does not guarantee future results, which may vary. As of December 31, 2022. Goldman Sachs does not provide accounting, tax or legal advice. The analysts said their assessment of the relationship between financial conditions and growth is approximate, given the uncertainties in the post-pandemic economy. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources. The following questions will help us determine the right team for you. Save a Copy as a PDF. "This higher rates path combined with recent tightening in financial conditions implies a somewhat worse outlook for growth and employment next year," Goldman wrote. It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. If the only thing you know about sports is who wins and who loses, you are missing the highest stakes action of all. For example, in the green bond principles, there are four components outlined for issuers to consider Use of Proceeds, Project Selection, Management of Proceeds, and Reporting.3 As an anecdote, in Q1 and again in Q3 of this year, verified deals outnumbered self-labeled deals, validating the anecdotal growth we have observed of these types of deals.4. There can be no assurance that the forecasts will be achieved. (AP Photo/Patrick Semansky, File / Associated Press). But the gap still remains "extremely high", and it can only be narrowed if the Fed convinces companies to lower job openings. Moody's and Fitch have followed the same trend. Mar 15, 2023 01:55 pm. This material has been prepared by Goldman Sachs Asset Management and is not financial research nor a product of Goldman Sachs Global Investment Research. This tug-of-war between views on inflation and economic data may be a persevering theme throughout the upcoming year. G10, or Group of Ten, is a group of eleven industrial countries which co-operate on economic matters.. Invest in Education. Expected outperformance should lead to municipals trading at the tighter end of their historical valuations. We believe market participants will have to start allocating capital based on what the world may look like tomorrow, not what it was in the past. Tail risk arises when the possibility that an investment will move more than three standard deviations from the mean is greater than what is shown by a normal distribution. A loss of principal may occur. Quantitative easing (QE) is a monetary policy where central banks spur economic activity by buying a range of financial assets in the market. Bull market is a term used to describe a market in which prices are rising or expected to rise. Welcome to the latest edition of the How2Wealth newsletter! Clients are growing more informed about the potential risks associated with investments across all markets and products, and the fear of greenwashing is no exception. Price/earnings (PE) ration is a gauge of how expensive a stock is. These verifications typically compare a specific deal to one of a variety of industry frameworks, such as the ICMA (International Capital Markets Association) Green or Social Bond Principles, which offers guidance on qualifications recommended to attain a label. The industry leader for online information for tax, accounting and finance professionals. This material represents the views of the Investment Strategy Group (ISG) in the Consumer and Wealth Management Division of Goldman Sachs and is not a product of Goldman Sachs Global Investment Research (GIR). All quotes delayed a minimum of 15 minutes. That said, there are some signs that 2023 may herald a change in direction. Any statement contained in this presentation concerning U.S. tax matters is not intended or written to be used and cannot be used for the purpose of avoiding penalties imposed on the relevant taxpayer. That would mean much tighter lending standards, which could be a drag on GDP expansion already affected by tightening in recent quarters. "The macroeconomic impact of a pullback in lending will remain highly uncertain . Goldman Sachs sees the Federal Reserve acting aggressively to tighten monetary policy through the rest of the year. In 2023, we think somebut not allof these headwinds will begin to abate. GS GQG Partners International Opportunities Fund, GS ActiveBeta International Equity ETF (GSIE). In 2023, we believe underlying economic and market conditions may get more challenging before they ease. Taxable issuance is expected to make up a much lower percentage (<15%) of overall municipal primary market volumes in 2023 compared to previous years (2020/2021 >30%). Dealer expectations for issuance in 2023 range between $50-60bn, compared to ~$45bn in total ESG issuance this past year. A great deal of variability exists with this forecasting as (1) there is debate around if and at what pace inflation returns to acceptable levels, (2) whether the U.S. enters a recession, and (3) how the Feds monetary policy will respond to economic data. This material has been approved for issue in the United Kingdom solely for the purposes of Section 21 of the Financial Services and Markets Act 2000 by GSI, Plumtree Court, 25 Shoe Lane, London, EC4A 4AU, United Kingdom; authorised by the Prudential Regulation Authority; and regulated by the Financial Conduct Authority and the Prudential Regulation Authority; by Goldman Sachs Canada, in connection with its distribution in Canada; in the United States by Goldman Sachs & Co. LLC Member FINRA/SIPC; in Hong Kong by Goldman Sachs (Asia) L.L.C. The world we live in is becoming more complex. Goldman Sachs warned on Wednesday of economic ripple effects in the aftermath of the Silicon Valley Bank and Signature Bank busts.The investment bank's chief economist Jan Hatzius slashed his 2023 GDP forecast by 0.3% in a new note out Wednesday afternoon. A U-shaped recovery is a type of economic recovery that experiences a recessionary decline followed by a gradual rise back to its previous peak. The value of investments and the income derived from investments will fluctuate and can go down as well as up. Goldman Sachs raised its recession odds from 25% to 35% on Thursday. Actual data will vary and may not be reflected here. Goldman Sachs has no obligation to provide updates or changes to these forecasts. As of December 30, 2022. Goldman also cut its US GDP outlook for 2023 to 1.6% growth, down from its previous forecast for a 2.2% expansion. Today, many leading indicators are pointing in opposite directions, and we believe it is important to convey this uncertainty to our clients unequivocally. They expect global growth to be 1.8% in . Goldman Sachs does not provide legal, tax or accounting advice, unless explicitly agreed between you and Goldman Sachs (generally through certain services offered only to clients of . Gross Domestic Product for 2023 and sees the unemployment rate rising higher than previously expected. Volatility became a consistent theme in the marketplace as investors continuously underestimated the magnitude and persistence of inflation as well as the hawkishness of the Feds response. As of December 31, 2022. Quarterly State and Local Total Receipts data is de-annualized. Many states and local governments are heading into the 2023-24 budget season in a strong position. These risks should be fully evaluated before making an investment decision. ESG strategies will be subject to the risks associated with their underlying investments asset classes. USD per GBP We have been cautious investing in several sectors since the onset of the pandemic, including the higher education and health care sectors both of which have been impacted by weak revenue and increasing labor costs. In the high yield space, we do see sector specific pressures continuing into 2023, which can also provide investment opportunities., Positioning for an Elevated, but More Stable Yield Environment, Strong Fundamentals Will Continue to Support Credit. Read more:We interviewed the CEOs of 4 of Warren Buffett's most iconic businesses. ; in Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in Japan by Goldman Sachs (Japan) Ltd; in Australia by Goldman Sachs Australia Pty Limited (ACN 092 589 770); in Singapore by Goldman Sachs (Singapore) Pte. More importantly for the longerrun economic outlook, we expect - consumer price inflation, as measured by the personal consumption expenditures (PCE) deflator, to fall throughout the year and average 2.6 percent in the fourth quarter of 2023. It is worth noting that this trend has slowed over the last few months. Investors should be aware that a determination of the tax consequences to them should take into account their specific circumstances and that the tax law is subject to change in the future or retroactively and investors are strongly urged to consult with their own tax advisor regarding any potential strategy, investment or transaction. Investments in fixed-income securities are subject to credit and interest rate risks. While the interest income is tax-free, capital gains, if any, will be subject to taxes. Under these scenarios, the velocity of revenue expansion will moderate significantly, and municipalities may require budgetary belt tightening for the first time in many years. EU Slips in Bid to Keep Pace With US, China in Clean-Tech Race, How US Sister Cities Have Supported Their Counterparts in Ukraine, Chicago Mayor Frontrunner Targets Crime, Taxes to Court Business, Crypto Winter Meets Banking Crisis: A Tale of Three Banks(Podcast), Princeton Universitys Blockchain Initiative, One Year Later (Podcast), NFT Fans Say2023 Is Looking Up After Rocky 2022 (Podcast). PLAN FIDUCIARIES SHOULD CONSIDER THEIR OWN CIRCUMSTANCES IN ASSESSING ANY POTENTIAL INVESTMENT COURSE OF ACTION. You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. It remains . Since 2020, job openings and core consumer price inflation have been strongly correlated.Goldman noted that post-pandemic rises in US job openings were concentrated in industries that typically see employment fall when financial conditions tighten. Bond investors suffered some of the largest losses in generations as inflation levels not seen in over 40 years led to unprecedented tightening by the Federal Reserve. In particular, large private universities with sizable endowments and hospital systems with strong cash reserves should benefit from relative credit rating stability and tend to be well positioned from a management perspective to navigate financial challenges. Percent of population. The following questions will help us determine the right team for you. Can You? One common measure of municipal valuations is the ratio of AAA tax-exempt municipal yields to comparable maturity Treasury yields. Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security, they should not be construed as investment advice. Sign up for our newsletter to get the inside scoop on what traders are talking about delivered daily to your inbox. Economic and market forecasts presented herein are for informational purposes as of the date of December 31, 2021. This information should not be construed as a current recommendation, research or investment advice. Goldman Sachs just raised its odds for a recession as turmoil in the banking system continues to unfold. Here's how the firm would play that environment. Demand from non-traditional buyers of municipal debt such as banks, insurance companies, and foreign investors will continue to be driven by relative valuations versus other fixed income asset classes. Source: Goldman Sachs Asset Management, Bloomberg, US Treasury Indices. Please see additional disclosures at the end of this presentation.