Goldman is pretty optimistic about global growth and (dis)inflation in 2024.

That was the overarching takeaway from the bank’s year-ahead macro outlook.

If you’re new to the research cycle, you’re in for a real “treat” over the next three or four weeks. Beginning in mid-November and continuing into December, banks flood clients with voluminous research pieces detailing forecasts for the upcoming year. Virtually none of those forecasts will be any semblance of accurate, but here’s hoping Goldman’s macro view is borne out.

“We don’t think the last mile of disinflation will be particularly hard,” analysts led by Jan Hatzius, wrote, citing three reasons for that exceedingly benign assessment (a lot of economists still believe that “last mile” — e.g., from 4.5% to 2.5% inflation — will be quite arduous or at least exhausting):

1. Improvement in the supply-demand balance in the goods sector is mostly done, but the impact on core goods disinflation “is still unfolding and will likely continue through most of 2024”
2. Shelter inflation has “considerably further to fall”
3. Labor market normalization (i.e., a more balanced supply-demand picture for workers) is continuing apace and in any case “a full reversal to pre-pandemic levels is probably not required given that inflation undershot central bank targets during that period”

The bank pointed to significantly slower wage growth and generally anchored inflation expectations in suggesting second-round impacts from the 2021-2022 inflation surge are unlikely.

“The upshot from this discussion is that last year’s disinflation does indeed have further to run,” Goldman said.

The bank sees core inflation moderating to levels that would be “broadly consistent with the inflation targets of most DM central banks by the end of 2024.”

Indeed, Hatzius suggested on-target core inflation could be achieved even earlier.

As for growth, Goldman said (and this is a direct quote), “there’s just no need for a recession.”

As some readers will recall, Goldman has consistently assigned much lower odds to a US recession than consensus. That’s obviously been the right call. So far.

“Even in the US, which has outperformed so clearly on growth in the past year, the median forecaster still estimates a probability of around 50% that a recession will start in the next 12 months,” Hatzius and co. wrote. Their subjective probability for a US downturn is just 15%.

Overall, Goldman expects global growth to be 2.6% in 2024, “a touch above” potential. The US should outperform, the bank said.

The table above shows Goldman’s forecasts compared to consensus and also relative to the bank’s estimates of potential.

There are four reasons for Goldman’s relatively rosy growth outlook:

1. Receding inflation and resilient labor markets is a recipe for healthy real disposable income growth
2. The majority of the drag from monetary policy tightening is actually in the rear view. Goldman has variously insisted that many market participants have misinterpreted Milton Friedman. The bank reiterated that argument without naming Milton. “As we have shown repeatedly, the maximum impact of monetary tightening on the growth rate (as opposed to level) of GDP occurs with a short and reasonably predictable lag of about two quarters,” Goldman said. “We therefore expect a smaller drag from tighter financial conditions in 2024 than in 2023, even after factoring in the recent increase in long-term interest rates”
3. Manufacturing activity was subpar in 2023 and is due for a rebound
4. Central banks, realizing a recession isn’t necessary to restore price stability, “will try hard to avoid one”

On the latter point, Hatzius wrote that according to the bank’s analysis of past hiking cycles, major central banks “are twice as likely to cut rates in response to downside growth risks once inflation has normalized to sub-3%.” So, in other words, as inflation approaches target, the odds of insurance cuts increase disproportionately.

Lest the uninitiated among you should get the idea that Goldman (or any other bank for that matter) isn’t apprised of the myriad risks, note that the tsunami of sell-side year-ahead outlook pieces that’ll flood in over the next several weeks will together constitute thousands of pages. Every “known unknown” will get a mention, and every risk factor which can be identified ahead of time will be addressed.

That’s certainly not to suggest that anyone will identify the risk. It’s always (and by definition) the shock you can’t see coming that gets you. Nobody had “pandemic” as a key risk in their year-ahead outlook pieces published this time four years ago.

Goldman cautioned that their forecasts are even more indeterminate now than usual. “Despite our broadly optimistic baseline expectations for 2024, data volatility remains elevated,” the bank said. “And we continue to see higher-than-normal risks to our overall economic outlook.”