Goldman Sachs' macroeconomic and fundamental outlook for 2018

Goldman Sachs presents its fundamental outlook for the US and European economies for the year 2018.

Growth:

We believe that overall expansion should continue, but at a more moderate pace. In the United States, this is due to the lack of savings capacity. In Europe, monetary and fiscal factors supporting growth are becoming less powerful, and in China, policymakers could turn their attention to growth and focus more on correcting imbalances after the 2017 party congress.

Inflation:

We believe that the slowdown in inflation in the United States should prove to be temporary. We do not anticipate a rapid acceleration of inflation in 2018. In a nutshell, we believe that the main impact of inflation on asset prices will not influence monetary policy, and in view of the strength of the US employment market, we believe that the inflation bar is sufficiently low to allow a continuation of monetary tightening. In Europe, we believe that inflation will be softer and any surprise should have a small impact on the markets in view of the distance to reach the target.

Monetary policy:

We believe that monetary tightening will start counting in 2018. The smooth and well-informed QE exit transition is expected to have a limited impact. The main impact should come from a pace of Fed rate hikes significantly higher than expected by the markets. This is likely to create pressure on bonds and there are risks that it may be a source of temporary volatility. Outside of bonds, we think the most persistent effect will be a stronger dollar.

Politics:

In the United States, beliefs in President Trump's ability to implement his policies are so weak that we believe there are opportunities for surprises. In particular, greater deregulation is a potential source of surprises. A deterioration in US trade policy is a risk. North Korea and geopolitical risks more broadly remain a factor, but it is not something we will bet on at this stage. In Europe, we believe that Brexit will primarily impact the UK economy, with only small spillovers in the euro area.