Goldman Sachs Sees 40% Risk of ‘Great Stagnation’

Friday, 30 Sep 2011 12:12 AM

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There's a 40 percent chance the world will experience a “Great Stagnation,” a period in which growth remains sluggish, unemployment rates stay high and markets move in a lackluster fashion, Goldman Sachs reports.

Recession fears may be on everyone's mind, but a Great Stagnation is more likely, Goldman Sachs concludes after studying 150 years of economic data.

“During these episodes, GDP per capita growth hovers below 1 percent and is less volatile than usual. They are also characterized by low inflation, rising and sticky unemployment, stagnant home prices, and lower stock returns,” Jose Ursua, an economist at Goldman Sachs, writes in a research note, according to CNBC.

"Stagnations are more likely than you would like. Because these events are correlated with financial crises, the conditional probability of stagnation in the current environment is higher than normal."

Not everyone, however, is concerned over a lukewarm economic output, as one poll shows.

Global investors predict Europe’s debt crisis to lead to an economic slump, a financial meltdown and social unrest in the next year with 72 percent predicting a country abandoning the euro in five years, a Bloomberg survey finds.

About three-quarters in the poll say the euro-area economy will fall into recession during the next 12 months.

"It's a bad crisis," says Jean-Yves Chereau, a poll respondent and chief investment officer at Halkin Investments, Bloomberg reports.

"Since the resurgence of troubles in Greece, you suddenly have a crisis of confidence and trust and that’s impacting markets and could hurt economies. Politicians need to move ahead pretty quickly."

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