FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that offsetting the resilience of domestic demand growth, the slowdown in emerging markets in general (and in China, in particular) is set to weigh on Euro area external demand and economic growth. Key Quotes “Relative to other advanced economies, the Euro area is particularly exposed to such developments, given the geographical pattern of its trade and financial relationships. Market developments in recent days provide an important reminder of the vulnerabilities that may remain in that part of the world. Relative to where we stood a year ago, we forecast that the slowdown in China and its knock-on effects throughout the emerging world will reduce Euro area annual growth by around 0.5pp in 2016. With our real GDP forecasts largely unchanged from last year, the negative impact of weaker external demand is offset by the resilience of domestic demand described above. From the (comfortable) perspective of a macroeconomist viewing the Euro area economy as a whole, one source of demand growth has been substituted for another, leaving the overall Euro area recovery intact. As a result, market participants with European equity exposure experience the change in the composition of demand growth in a much more painful manner than the economy as a whole. And gaining exposure to the better-performing domestically oriented firms is difficult (at least in public liquid markets), given the preponderance of small privately-owned firms in the relevant sectors. Just as European equity markets could perform better than the European economy at the peak of the Euro area crisis given their exposure to other, better-performing parts of the world economy at that time, now – as our colleagues have written elsewhere – returns in European markets may be challenged even in the context of a relatively resilient (if still modest) economic recovery.” For more information, read our latest forex news.