Goldman Sachs global strategy meeting: the Federal Reserve may cut interest rates twice, and the Chinese stock market is expected to lead Asia.

Goldman Sachs held its 33rd annual Global Strategy Conference in London, with over 300 clients attending in person and many more participating online. During the conference, the company surveyed the audience on their views and opinions on macroeconomic trends. Below are the insights gathered from attending investors and Goldman Sachs' viewpoints. Q1: How much will the US GDP grow annually in 2025? 80% of clients expect the US GDP growth this year to exceed 2%. No one predicts a recession, with only 1% of clients expecting US GDP growth to be below 1%. This optimism may be due to recent positive labor market data. Today, on the presidential inauguration day in 2025, the US economy is at a healthy point of growth that is gradually slowing down inflation. Goldman Sachs estimates that the actual GDP growth in the fourth quarter was 2.6%. Goldman Sachs economists predict that the US GDP will grow by 2.6% in 2025, which is higher than the widespread expectation of 2.1% and the estimate of around 2.0% for the medium-term potential growth rate. Goldman Sachs remains more confident than others that real disposable personal income will steadily increase in 2025, partially due to strong forecasts for business investment. However, the bank is not as far above consensus as it was in the past two years, as other forecasters have become more optimistic due to ongoing strong data and, in some cases, high expectations for growth from the Trump agenda. Q2: How many times will the Fed cut interest rates in 2025? 60% of clients expect one to two interest rate cuts this year, while 23% expect three to four cuts. Almost no one expects five or more cuts, but 16% of clients hold the opposite view, predicting no cuts or even hikes. This aligns with the market relatively. In fact, the weighted average suggests that attendees expect a 50 basis point cut, or two cuts, somewhat in line with market pricing of a 37 basis point cut in 2025 (equivalent to 1.5 cuts). Goldman Sachs View: Goldman Sachs economists are confident in two aspects of the outlook for US monetary policy: A) no interest rate cuts in the FOMC meeting in January; B) no substantial risk of rate hikes in the near term. Beyond that, the prospect is uncertain, as the consideration of ongoing inflation makes rate cuts appear reasonable, but given the strength of the real economy, rate cuts seem unnecessary. However, we strongly believe that, on a probability-weighted basis, market pricing is too hawkish. Our baseline forecast is for two 25 basis point cuts this year (June and December), followed by one cut in 2026, with final rates at 3.5-3.75%. But the risks to this forecast are mostly downward, as the Federal Open Market Committee may decide to cut rates before June, even in good economic conditions, or a significant rate cut could occur in the case of a sharp deterioration in economic data or risk sentiment (though unlikely, but far from remote). Q3: How much will the European Central Bank cut interest rates in 2025? About half of respondents expect a 100 basis point cut in 2025. The weighted average of the survey also suggests four rate cuts, consistent with market expectations. The current weak economic environment, coupled with risks from Trump tariffs and falling inflation, could lead to further easing of policy. Additionally, some ECB officials advocate for a 50 basis point cut. Goldman Sachs View: The bank's economists expect the European Central Bank to continue lowering the deposit rate in increments of 25 basis points, reaching 1.75% by July, which is the low end of the neutral range outlined by President Lagarde. The risks are twofold: if inflation exceeds expectations, a slowdown in quarter-on-quarter growth in April and a pause in rate cuts is feasible; conversely, if economic activity and employment data weaken, a 50 basis point cut is still possible, though unlikely in the first quarter. Overall, on a probability-adjusted basis, our forecast remains slightly below market pricing. Q4: How much will the Bank of England cut interest rates in 2025? When asked about the UK, there was much uncertainty and varied results. Most people expect the Bank of England to cut interest rates twice this year, with about 60% expecting three or more cuts. On average, the market generally expects a 75 basis point cut, which more or less aligns with market expectations. This suggests that while the results align with market pricing, there is significant uncertainty in the UK. Goldman Sachs View: Our economists believe that despite selling pressure on UK government bonds, the Bank of England is likely to cut rates by 25 basis points in February. We believe that higher long-term rates would put pressure on economic growth and inflation prospects, which should require the Bank of England to cut rates more (not less). Some argue that the weakening of the pound has alleviated this drag and signaled a broader loss of confidence in UK assets. However, based on the trade-weighted basis, the pound has only mildly weakened, indicating limited concerns so far about currency weakness. Q5: How will the policy of the new US government affect the US and other regions of the world? Most attendees believe that the policies of the new US government will have different effects on the US and other regions of the world. Specifically, 68% believe these policies will benefit the US. However, only 16% believe they will have a positive impact on other regions of the world. This suggests a more challenging global outlook. Goldman Sachs View: Our economists have forecasted policy changes that may occur in three key areas. First, they expect tariffs on Chinese imports and automobiles to increase actual tariffs by 3-4 percentage points. Secondly, they expect tightening policies to reduce net immigration to 750,000 annually, slightly below the pre-COVID level average of 1 million per year. Third, they expect the extension of expiring 2017 tax cuts and the addition of moderate new tax cuts. Q6: Which emerging market economy/region provides the best long-term investment opportunity? India has been seen as the best long-term investment opportunity for the second consecutive year. It received a vote share of 42%.Slightly lower than last year's 50%. India positions itself as a major manufacturing alternative to China, with economists predicting a real GDP growth rate of 6.3% for its fiscal years 2025 and 2026. The outlook for Latin America is not optimistic, with only 9% of participants expecting the region to outperform other emerging markets, down from 12% last year. About a quarter of participants believe that the uncertainty in overall policies of emerging markets remains a concerning issue, and they consider developed markets to still be the best investment opportunity.Goldman Sachs View: Economists believe that the largest emerging market economies may slow down in the near term, including all BRICS countries (especially Brazil and Russia). However, they expect some emerging markets that have undergone significant macroeconomic adjustments and/or military conflicts (including Argentina, Egypt, Israel, and Saudi Arabia) to rebound. Facing a more challenging external backdrop and upcoming tariff uncertainties, Goldman Sachs' emerging markets equity analysts believe that emerging market stock markets with strong domestic micro fundamentals, relatively unaffected by external risks, and supported by supportive local policies are most likely to perform well. In Asia, China and ASEAN domestic stock markets may lead, while the Indian stock market should remain stable. In Central and Eastern Europe, Goldman Sachs is more inclined to invest in defensive Middle East and North African markets, and expects South Africa to continue to outperform the Central and Eastern European markets. Q7: What is the biggest risk facing the global economy and markets in 2025? Attendees stated that the global trade war is the biggest risk facing the global economy and markets, with 41% of respondents expressing this concern. This worry has intensified with the expectation of rising tariffs and the surge in uncertainty in trade policy following Trump's election. 30% of participants believe that geopolitical risks remain the second biggest concern (more than half lower than last year). Ongoing tensions in the Middle East and the Russia-Ukraine conflict continue to cause anxiety among investors. In addition, around 20% of attendees now see the resurgence of inflation as the biggest risk (up from 15% last year). This growth may be driven by strong labor market data in the United States and the recent rebound in energy prices. Goldman Sachs View: Geopolitical and political events are key risks for portfolios, but they are particularly difficult to positiontiming and market impact are often hard to predict, especially the former. Considering the timing challenges of geopolitical events and the heterogeneity caused by potential very different risk drivers and potential macro environments, Goldman Sachs' asset allocation team believes that strong portfolio construction and diversification are the first line of defense for investors. By 2025, they will maintain a moderate risk appetite, focusing on asset diversification and selective tail risk hedging.