The global economy will outperform again in 2024, Goldman Sachs Research says, basing it on its economists' prediction for income growth (amid cooling inflation and a robust job market). 

 

The economists note that rate hikes have already delivered their biggest hits to GDP growth. They hold the view that manufacturing will recover. 

 

Central banks, meanwhile, will have room to reduce interest rates if they're concerned about the economy slowing. “This is an important insurance policy against a recession,” Goldman Sachs Research Chief Economist Jan Hatzius writes in the team's report.

 

 

More optimistic

Worldwide GDP is forecast to expand 2.6% next year on an annual average basis, compared with the 2.1% consensus forecast of economists surveyed by Bloomberg. In fact, Goldman Sachs Research's forecasts for GDP growth in 2024 are more optimistic than the consensus for eight of the world's nine largest economies, as of November 8, 2023. And notably, Goldman economists expect US growth to outpace its developed market peers again.

 

Goldman Sachs Research forecasts AI may start having a measurable impact on US GDP in about four years and begin affecting growth in other economies shortly after. 

 

The foundation of the forecast is the finding that AI could ultimately automate around 25% of work tasks in advanced economies and 10-20% of tasks in emerging economies, Goldman Sachs Research economists Joseph Briggs and Devesh Kodnani write in the team's report.  

Goldman economists estimate a growth boost from AI of 0.4 percentage points in the US, 0.3 percentage points on average in other developed markets, and 0.2 percentage points on average in advanced emerging markets by 2034. In other emerging markets, Goldman Sachs Research forecasts a smaller boost from AI, given adoption will probably take longer and AI exposure will likely be lower. 

 

“We expect this automation to drive labour cost savings and free up workers' time, some of which will likely be allocated to new tasks,” Briggs and Kodnani write. The ultimate signifiance of these effects will depend on how capable AI actually becomes and how it's used.

 

Anti-obesity medications

By 2030, the global market for anti-obesity medications could grow by more than 16 times to $100 billion, up from $6 billion annualised sales this year, according to Goldman Sachs Research. Its analysts estimate the weight management market could yield some of the highest-grossing drugs of all time. 

 

These new-generation therapies are emerging as obesity rates continue to rise. Based on current trends, more than half the global population will be overweight or obese by 2035, compared with 38% in 2020, according to the World Obesity Atlas 2023.The new class of drugs has achieved weight loss in the mid-20% range for body weight reduction, compared with around 3% to 11% for early generation therapies.  

 

Clinical studies could expand the use of these drugs if they prove effective at reducing medical risks related to obesity, such as cardiovascular disease, cancer, and sleep apnea. “The studies are meant to create, in essence, a wall of evidence to further compel insurance companies into the argument that it makes good pharma-economical sense for them to provide coverage for these anti-obesity medications,” said Chris Shibutani, senior biopharmaceuticals analyst in Goldman Sachs Research, says on Goldman Sachs Exchanges. 

 

Wider insurance coverage — combined with breakthroughs in efficacy and safety relative to earlier generation therapies — already appears to be changing buying behaviour. Consumers purchasing medications to counter side effects linked to anti-obesity drugs (diarrhea and nausea) are also reducing their consumption of breakfast foods, weight loss bars, and salad dressing. 

 

“This looks to me like a consumer who maybe doesn't have the same appetite in the morning. Skipping a breakfast on occasion. And maybe a consumer who's been trying to already manage their weight by consuming more salads and weight loss bars,” says Goldman Sachs Research's Jason English. This consumer looks like “the early adopter of these drugs,” he adds.  

 

Large-scale adoption of anti-obesity medication could have a significant impact on the food and beverage industries. If adoption in the US reaches around 15 million people, that could erase some 2% to 3% of the population's caloric intake, English says. “We're talking about six- or seven-years' worth of industry growth erased in a scenario such as that.” 

 

Oil price

While the rise of renewable energy is expected to cut demand for oil over time, that will not necessarily translate into lower oil prices, according to Daan Struyven, who leads oil research for Goldman Sachs. Uncertainty about the pace of transition away from oil may play a role in keeping prices high. 

 

“Over the next 20 years, global oil demand is widely expected to slow or fall,” Struyven says. “But the further out you look, the more forecasts diverge.” 

 

This lack of clarity presents a challenge for oil companies, which don't want to produce more oil than the world is willing to buy. “Because the demand outlook is so uncertain, companies are delaying their investments in expensive, long-cycle projects,” Struyven says. “As existing projects get depleted, oil supply could drop — and rather than a surplus of oil, we may find ourselves with regular deficits.” 

 

The uncertainty could also have a more direct impact on the prices of long-term futures. “Investors may require a premium in long-dated prices to compensate for the increased investment risk from high uncertainty about demand,” Struyven says. 

 

These insights lead Struyven to a surprising conclusion: “Even if the world eventually uses less oil, the price of a barrel of oil could remain remarkably robust.” 

 

US mortgage

Goldman Sachs Research forecasts US mortgage rates in the coming year to be higher than it previously expected. Home prices are also projected to increase even as borrowing costs remain elevated.

 

As interest rates have risen, 30-year mortgage rates are now expected to be 7.6% at the end of 2023, up from the previous estimate of 7.1%, Goldman Sachs Research analysts Roger Ashworth and Vinay Viswanathan write in the team's report. Similarly, the forecast for rates at the end of 2024 now stands at 7.1%, up from 6.8% previously. At the end of 2025, rates are predicted to be 6.6%.

 

Meanwhile, homes have appreciated despite the rise in borrowing costs. Prices grew in August by 0.9% month-over-month, reflecting an annualised 11% pace, according to Case-Shiller data. “The continued strength of the data surprised us,” Ashworth and Viswanathan write. Goldman Sachs Research expects home prices, adjusted seasonally and accounting for the full year, to appreciate 2% in 2023, 1.9% in 2024, and 2.8% in 2025.--TradeArabia News Service