From the Australian Financial Review: Goldman slashes 2014 growth forecast; calls 20pc chance of recession (gated)

  • GDP forecast now at 2% (from 2.4) for 2013
  • and to 1.9% (from 2.7) for 2014
  • Also predicting a 20 per cent chance of a recession
  • Australian dollar forecast lowered to US85¢ from US90¢ on a 12-month basis

Reasons why Goldman is pessimistic:
■ High private investment share of GDP
■ High real exchange rate
■ Falling terms of trade
■ Poor labour demand and slowing labour income dynamics
■ Political environment that is unlikely to provide the cushioning role of fiscal policy

Events that Goldman thinks could signal a recession is upon us:
■ Rise in oil prices
■ Spikes in the real trade weighted exchange rate
■ Deterioration in labour vacancy indicators
■ Terms of trade shocks
■ Over-investment by business in a key part of the economy
■ Sharp slowdown in household income growth
■ Shares fall
■ Government fiscal position