Goldman Sachs predicts “great stagnation” in the global economy

3 October 2011

Goldman Sachs has predicted that the world economy will face “great stagnation”, according to a new piece of research.

A study by the bank anticipates that there is a 40 per cent chance of stagnation occurring in the ‘developed’ economies and markets.

Periods of stagnation are defined by the bank as times when the growth rate in per capita gross domestic product is 0.5 per cent and unemployment is viewed as “high and sticky”.

Jose Ursua, a Goldman analyst, said in a report, which was quoted by Bloomberg, said that a period of stagnation “is a plausible risk and a legitimate concern for the major developed economies”.

“Whether these countries manage to avoid a ‘Great Stagnation’ by a pick-up in the recovery is likely to depend on policy being able to restore confidence and putting in place reforms that can decisively jolt growth.”

The analysis was based on examining the last 150 years of macroeconomic data, which revealed that the probability of stagnation is much higher after a financial crisis.

By Jim Ottewill

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