Goldman Sachs Makes Unsurprising Move Amid Recession Talks

Goldman Sachs
The ticker symbol and logo for Goldman Sachs on a screen on the floor at the NYSE in New York (Photo: Reuters / Brendan McDermid)

In a move that's been expected for a few months now, Goldman Sachs on Sunday slashed its fourth-quarter growth forecast to 1.8 percent - a cut of 20 basis points. The company admitted that the decision was affected by fears surrounding a potential global recession as brought about by the trade war.

According to CNBC, Goldman Sachs chief U.S. economist Jan Hatzius said the bank is expecting a much bigger impact from the trade war now that tensions between China and the U.S. have been escalated.

"The drivers of this modest change are that we now include an estimate of the sentiment and uncertainty effects and that financial markets have responded notably to recent trade news," Hatzius said of the lower growth forecast.

Hatzius is believed to be referring to recent talks among economic experts and investors about the possibility of a global recession. The debates came up after U.S. President Donald Trump shocked markets when he announced 10 percent tariffs on the rest of the Chinese goods that have not been tariffed yet.

"Fears that the trade war will trigger a recession are growing," Hatzius pointed out, echoing sentiments of other analysts regarding the supply chain disruption that new tariffs on $300 billion worth of Chinese products will bring.

Last week, Goldman Sachs already predicted that the White House will most likely pursue tariffs going into affect by September. The international banking group further said it is not expecting a China-U.S. trade deal before Trump battles it out at the 2020 election.

Meanwhile, Chinese consumers are expected to remain cautious of their spending behaviors as uncertainties revolve around income growth and new job availabilities.

Economic analysts are expecting China's consumer spending to weaken further for the entire year. They further explained that the slower consumption in the country is the result of lower investments in manufacturing.

Senior China Economist at Capital Economics, Julian Evans-Pritchard, stressed that at this point in the trade war, the consumer may no longer have the capacity to "rescue" the Chinese economy.

Evans-Pritchard explained that "the consumer is also suffering from the trade war," which could hamper expectations that consumption can help curb the impact of the escalated trade dispute.

Many analysts have frowned at Trump's tactics in the trade war. Professor and Director of the Center for Sustainable Development at Columbia University, Jeffrey Sachs, pointed out that Trump's strategies are a form of "economic manipulation."

Sachs explained that contrary to Trump and Washington's claims that China is a "currency manipulator," the reason why the country allowed the yuan to depreciate is that Beijing is looking for ways to stabilize the country's growth despite continued attacks from the U.S.

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