Goldman Sachs warns of W-shaped recovery

Economy set for bumpy ride if governments withdraw stimulus too early, says bank's president

Goldman Sachs is not seeking big-ticket mergers but will continue with its strategy of bolt-on acquisitions, president John Waldron said. Reuters

The global economy could be in for a bumpy ride as lockdowns tied to the Covid-19 pandemic begin to ease, especially if governments start to pull back on stimulus programs, Goldman Sachs president John Waldron said.

“The biggest risk we all face is the economic trajectory,” Waldron said Wednesday at a virtual conference hosted by investment management company AllianceBernstein.

“The risks ahead are that it doesn’t go quite that smoothly, and you have re-emergence of the virus maybe in pockets, you have uneven start-and-stop kind of feeling around the world.”

Jamie Dimon, JPMorgan Chase chief executive, said on Tuesday that the odds are good for a fairly rapid recovery in the US, with the response from the Federal Reserve paving the way for a rebound. Goldman Sachs analysts continue to expect growth next year to outstrip the roughly 4 per cent decline in gross domestic product they forecast for 2020.

Credit risk for corporations and consumers is a particular point of concern for Goldman Sachs, where Mr Waldron is second in command.

Middle-market lending has seen a major expansion in recent years through both banks and non-bank lenders, and Mr Waldron said there’s a risk that sector won’t benefit from access to capital markets or government support. “We are playing close attention to that,” he said.

A W-shaped recovery could also pose a unique challenge for consumers, especially if government support wanes, according to Mr Waldron. That would lead to “a lot more destruction” in consumer credit, he said. Goldman Sachs is still a relatively small player in extending credit to individuals, with outstanding loan balances of about $7 billion (Dh25.7bn).

Goldman Sachs will start bringing workers back to offices in the US and London over the next several weeks, according to Mr Waldron.

The bank is still leaning toward bolt-on acquisitions to expand, and isn’t interested in large-scale mergers, he said. The firm evaluates all opportunities, but the bar for bigger deals remains high, he said.