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Road to Recovery

by Kathleen Hughes, Head of Global Liquidity Management Sales, and Jason Granet, Head of International Liquidity Portfolio Management for Global Liquidity Management, Goldman Sachs Asset Management

The global recovery has faced many challenges over the past year, and heading into 2012 the dominant issues are yet to be resolved. Global growth remains sluggish and the situation in the Eurozone has become more pressing. At the same time, however, support for the recovery has never been stronger. Kathleen Hughes and Jason Granet of the Goldman Sachs Asset Management (GSAM) Global Liquidity Management team, discuss these developments and the potential implications for investment in the year ahead.

This time last year the global recovery looked in good shape, but by the end of the first quarter it had hit serious challenges. Do you expect growth to improve much this year?

Our outlook is for slower global growth in 2012, with a wide disparity between developed and emerging economies.

If we focus on the world’s largest economy, the outlook is generally benign. US growth picked up notably in the fourth quarter, to 2.8%, and we expect a pace close to trend in 2012. Manufacturing data point to continued expansion, unemployment has declined, slowly, from a peak of 10% in October 2009 to 8.5% as of end-2011. We’ve also seen stabilisation in the housing market, and we expect a slow and gradual recovery.

In terms of global growth, the bulk is still generated by the developing world. For example, though China’s growth has slowed, it was still running above consensus at 8.9% in the fourth quarter, and we believe that policymakers will provide sufficient stimulus to keep the pace around 7.5% for 2012.