Goldman Lowers 2011 GDP Forecast

Submitted by Tyler Durden
05/07/2011 12:31 -0400
7 comments

Once again Goldman confirms that shooting for the moon, when it comes to an artificial, self-sustainable "virtuous growth" cycle in a centally planned economy is an exercise in futility. As long expected, the gradual roll down in growth forecasts begins, and all of Wall Street's lemmings will rush next week to undercut each other, all the while blaming cold weather, hot weather, and any weather for not being able to see this. Fore one previous example (and there are dozens) of Zero Hedge indicating Goldman's overoptimistic forecast read here.

From Goldman: "Spring Cleaning for Our Forecasts"

Forecast change summary:



1. We now forecast that real GDP will increase by 3.5% in Q2 2011 and 3¼% in the second half of this year. The rise in oil prices —although now partly reversing—is likely to prove a meaningful drag on consumer spending and business investment. Besides this sizable shock [what shocks: , however, we continue to see a broad-based normalization in the economy. Bank lending, the labor market, and business confidence have all improved. We therefore expect GDP growth to remain abovetrend, and to accelerate in late 2012 as the effects of the rise in oil prices begin to fade.

2. A gradual drop in the jobless rate, to 8.5% by year-end 2011 and 8¼% by year-end 2012. The persistence of above-potential growth over the next two years should help reduce the rate of unemployment visibly during this period. However, we expect the pace of improvement to slow sharply as the rapid drop in labor force participation gives way to a modest increase.

3. A moderate rise in core inflation. We raised our inflation forecasts, and now expect the core PCE price index to accelerate modestly to 1.3% from 0.9% now. Despite significant excess capacity, stable inflation expectations should draw underlying inflation closer to the Fed’s target. In addition, rising rent inflation—caused in part by a decline in homeownership and surge in demand for apartments—may put upward pressure on the major price indexes. In our forecast, year-to-year headline inflation as measured by the all-items CPI rises to 4% by the third quarter of 2011 before ebbing to just 1½ % at year-end 2012.

4. No Fed rate hikes before 2013. We have a high degree of confidence in this view for 2011, but see it as a much closer call for 2012. However, with the jobless rate far above the Federal Open Market Committee’s “mandate-consistentâ€