A seriously behind the curve Goldman Sachs is still trying to defend its capital-devouring long commodity call. Having completely missed the severity of the China slowdown, and associated commodity crash, it now says a rebound is imminent:
We have to add to the mix a combination of weather related disruptions, rising regulatory risk andthe material downside in the July data–which was evident across almost all sub-categories inboth consumption and industrial production data…so the question is what to make of thetrajectory, Delta aside?? WHILST ECONOMIC ACTIVITY IN CHINA WILL REMAIN SOFT IN AUGUST…ourEconteam see a policy support ramp up into Q4. They have trimmed their Q3 real GDP forecastslightlyfurther, to 5.1% yoy / 1.3% qoq ann (vs. 5.4% / 2.3% previously) but expect a rebound insequential growth on economic reopening and government support in September andQ4. Bottom line, they expect a nice cocktail of monetary and fiscal stimulus to save theday…they look for fiscal spending to pick up significantly and for policymakers to implementvarious sector-level regulations in a coordinated manner…amplified by liquidity provision fromanother RRR cut. Such monetary and fiscal policy coordination canhelp provide a floor togrowth. Indeed, there are signs that the market is starting to reprice China growth prospectshigher recently (e.g. the oil rally)…but underlying pessimism remains and a policy response ofthe order that our team expects is not intoday’s price.
Wrong again. Even if lending suddenly surges now, there’ll be no rebound before late Q1, 2022. What do they think, that infrastructure projects roll off a conveyor belt?
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
