FXStreet (Delhi) – Research Team at Goldman Sachs, expects global GDP growth to edge up from 3.2% in 2015 to 3.5% in 2016, although the improvement largely reflects stabilization in some of the hardest-hit EM economies. Key Quotes “Elsewhere, we see more modest changes, including a small acceleration in Europe and Japan, a small deceleration in the US, and a larger deceleration in China.” “Despite the repeated disappointments in GDP growth in recent years, the performance of the labor market—a more reliable measure of the cycle than real GDP, at least in a period of sharply lower potential growth—shows that the advanced economies are actually recovering nicely from the crisis. Unemployment in the G7 has fallen faster in the past five years than over any comparable period since at least the 1970s, despite a rebound in working-age labor force participation.” “Even if oil prices remain low, as we expect, headline inflation is likely to rebound to more normal levels soon. Core inflation should remain below central bank targets almost everywhere, but is likely to rise gradually as energy pass-through abates and some economies— especially the US and the UK—are now close to full employment.” “The Federal Reserve looks set to start normalizing monetary policy in December, and the Bank of England is probably not far behind. We think that US short-term rates will ultimately rise further than currently discounted in the bond market. In contrast, other major central banks—the Euro area and probably Japan—look set to ease policy further soon as inflation and/or employment remain well below target.” “Monetary policy divergence is likely to result in continued dollar appreciation. This is mostly a healthy development because it redistributes demand from the US, where employment is already close to potential, to other countries that lag further behind. But it looks less benign in China, where trade-weighted currency appreciation resulting from the dollar peg is exacerbating the domestic growth slowdown.” “We think the biggest risks lie in spillovers from a sharp slowdown in China and/or a large dollar appreciation. Our modeling work shows that both would likely hit China hardest, for obvious reasons in the first scenario and because of the dollar peg in the second.” For more information, read our latest forex news.