Growth is expected to hold steady in 2027—why are risks still tilted to the downside?

  • Goldman Sachs expects global GDP growth in 2027 to be similar to 2026. A key assumption behind this view is that falling energy prices will offset weaker support from fiscal stimulus and AI. Stable growth depends on several forces offsetting one another, not on every driver remaining steady.
  • Actual energy price movements are adding pressure: escalating tensions in the Middle East have pushed energy prices close to their spring highs. This runs counter to the decline in energy prices required by the baseline scenario and is important context for Goldman Sachs’ view that risks are clearly tilted to the downside.
  • Another pressure comes from financing costs. Long-term interest rates have risen by 100 basis points since the beginning of 2026. Goldman Sachs estimates that this could cumulatively reduce the level of GDP by about 0.6% through weaker housing and investment, rather than directly lowering any single year’s growth rate by 0.6 percentage points.

With growth under pressure, why does Goldman Sachs still expect fewer rate hikes than markets have priced in?

  • Goldman Sachs’ clearest global call is that central banks’ ultimate cumulative rate increases will be smaller than markets currently price in. However, the bank still expects the Federal Reserve and the European Central Bank each to potentially deliver one final 25-basis-point hike in December: the difference concerns the entire rate-hiking path, not whether there may be one more hike in the near term.
  • Economic performance also varies by region. Following slightly faster third-quarter growth, Goldman Sachs raised its forecast for China’s 2026 GDP growth to 4.6%. This upward revision coexists with its assessment of global downside risks; global pressure does not mean forecasts for every economy are being cut.

Risk appetite has fallen to a low level—what supports the equity overweight?

  • Goldman Sachs’ risk appetite indicator has fallen to -0.5, its lowest since April 2025, but the bank maintains an overweight in equities and an underweight in credit assets in its 3-month and 12-month allocations. This is a measured allocation with a modest tilt toward risk.
  • The case for year-end equities rests on earnings support, light investor positioning and lower valuations. On that basis, Goldman Sachs expects the S&P 500 index to rise after the US midterm elections, even though AI concerns and geopolitical tensions may still cause short-term volatility.
  • The near-term constraints are also specific: major technology companies’ earnings reports, central bank decisions and the US midterm elections are clustered over the next two weeks, and options markets have priced in elevated uncertainty. A bullish year-end view can coexist with increased near-term volatility.

Which two types of shock should portfolios guard against?

  • Technology stocks have become an important driver of cross-asset risk appetite: recently, performance across asset classes has been more sensitive to semiconductor stocks than to oil prices. Goldman Sachs therefore favors using the yen to hedge AI-related concerns and guard against technology sentiment spreading to other assets.
  • A different approach is used for energy shocks: Goldman Sachs recommends targeted exposure to crude oil and European natural gas. This corresponds to its baseline assumption of falling energy prices: if developments in the Middle East continue to push prices higher, the portfolio retains relevant exposure to address that risk.