Goldman's guide to the rest of your life

Goldman’s guide to the rest of your life

It’s notoriously easy to predict the future, and since the world’s leading investment banks can easily plan for the year ahead, why not try the next 50?

This is what Goldman Sachs has attempted in a new report called ‘The Path to 2075’. This updates long-term growth forecasts made in 2003 and 2011, primarily on the outlook for the BRIC economies (a famous name coined by Jim O’Neill, head of economic research at Goldman when the first report came out).

Before diving into D Sol’s crystal ball, let’s contextualize 2075 in popular culture, because 53 years seems a long way off. Landing point lands roughly in the middle of the window in which Cormac McCarthy’s The Road takes place. In the book/movie, a father and son encounter despair and cannibalism in a wasteland of ash. Other silver screen traffic signs include:

– Mad Max: Fury Road (2015), in which militiamen fight in an irradiated Australian desert for water and fuel, set in the 2060s.
— Dredd (2012), in which a super cop and a mutant rookie hunt criminals in a vast metropolis nestled in a post-apocalyptic wasteland, set in the year 2080.

Of those two, FT Alphaville would rather live in Dredd’s world – better just struggling to get your drug fix than struggling to get, you know, water. This would suggest that things are going to improve, from a standard of living standpoint.

Oddly, none of that is in Goldman’s memo. Instead, Kevin Daly and Tadas Gedminas have identified “four major themes” for the coming half-century (condensed here):

1) Slower global potential growth, driven by weaker population growth.

2) Emerging market convergence remains intact, led by Asian powers. Although real GDP growth has slowed in both developed and emerging economies, in relative terms, EM growth continues to outpace DE growth.

3) A decade of American exceptionalism that is unlikely to be repeated.

4) Less global inequalities, more local inequalities.

In 11 years since the last update, it’s the more it changessays GS:

In the period since our 2011 projections, the global economy has been rocked by a number of secular challenges and economic shocks: disappointing productivity growth in the aftermath of the global financial crisis (GFC), a of global protectionism, the Covid-19 pandemic and, more recently, the war in Ukraine. Despite these headwinds, most of the key features of our 2003 and 2011 projections remained intact. However, others now need to be revisited.

Despite this slight tone of resentment at the homework set, Goldman makes a few projections, including:

. . . the five largest economies in the world in 2050 (measured in real USD) will be China, the United States, India, Indonesia and Germany (Indonesia supplanting Brazil and Russia among the largest markets emerging). By 2075, with the right policies and institutions, Nigeria, Pakistan and Egypt could be among the largest economies in the world.

Here’s the tabular (/pseudo bumps-chart) version of that:

And here’s a much more exciting version, including a helpful indication of which direction the projections are:

Cared for! You have to hand it to India for timing things perfectly to propel the United States into second place for 2075, photo-finish.

It’s a great time to revisit this, er, chart, from the 2011 report:

Obviously, China is pretty special, but by its own metrics, Goldman got it wrong on, uh, Russia, Brazil, and India. Which is odd given (repeating) “most of the key features of our 2003 and 2011 projections remained intact”. Never mind.

For the curious, here is the 2011 ranking for 2050 compared to the new 2022 version:

There are some really big moves out there! Goldman doesn’t deign to go into detail about (for example) why about a decade ago he thought Russia would be the world’s fifth largest economy by 2050, and now thinks it will be the 10th. that Russia “underperformed our projections”, which is a pretty circular way of looking at it.

Back to the future, Goldman conceded that growth has not been as strong as he predicted:

He doesn’t really try to explain Why, which would surely be the first starting point, choosing instead to “improve” its models. This also raises the question: whether the projections had were right, would they still have taken these steps to improve the models?

The graphics that follow include many flashbacks and what appears to be a guest contribution from Jackson Pollock:

The report is on slightly more comfortable ground looking at things like population, echoing the widely recognized point that slowing global growth means the number of humans on the planet may have peaked:

Goldman confidently asserts:

This slowing of population growth is a “good problem” to have, since controlling the world’s population is a necessary condition for long-term environmental sustainability.

Ah OK!

Much of the rest of the report is a catch-all of investment advice and overworked modeling. It strays dangerously far from self-awareness when the authors write, trying to explain with EMs, that they have underperformed DMs for returns over the past decade:

Financial markets reward and penalize unexpected trend changes, but are indifferent to the predictable continuation of trends.

There’s a lesson there somewhere.

#Goldmans #guide #rest #life

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