Goldman Sachs 2027 Macro Outlook: Global Economy Slightly Accelerates but the Road is Rocky, Downside Risks Cannot Be Ignored

Author: Li Dan, Wall Street Journal

The global economy has shown unexpected resilience after the impact of the Iran War in 2026, but Goldman Sachs warns that the growth path in 2027 will be more rugged, with risks clearly tilted downward.

The 2027 macro outlook report, led by Goldman Sachs Chief Economist Jan Hatzius, predicts that global GDP growth will slightly rise from 2.7% in 2026 to 2.8%, just above the potential growth rate.

The core judgment of the report is: the normalization of energy prices and sustained strong AI capital expenditure will provide major support, but tightening financial conditions and the retreat of fiscal stimulus will create a counterbalance, resulting in an overall growth pattern that is "steady but flat." Meanwhile, Goldman Sachs explicitly points out three major downside risks—escalation of the Iran situation, turbulence in the bond market, and an early peak in the AI investment cycle—and believes that the challenges facing the market will be more severe than the macroeconomic situation itself.

On the monetary policy front, Goldman Sachs expects the Federal Reserve to raise interest rates once in December and again in March next year, while the European Central Bank will complete its final rate hike in December, after which both central banks will shift to rate cuts by the end of 2027. Goldman Sachs' interest rate forecasts are overall more dovish than market pricing, which could be a potential boon for both stocks and bonds. In terms of asset allocation, Goldman Sachs maintains a baseline forecast of positive returns for stocks and bonds but emphasizes that as the market cycle matures, the probability of increased volatility is greater than that of a decrease, advising investors to strengthen hedging and diversified allocations.

Growth Momentum Shift: Energy Turns Favorable, AI Investment Remains the Main Engine

In 2026, a surge in AI capital expenditure, loose financial conditions, and fiscal expansion in economies such as the United States and Germany largely offset the energy supply shock caused by the Iran War, resulting in a global economic growth of 2.7%, just 0.1 percentage points lower than Goldman Sachs' previous forecast. Taiwan and South Korea significantly outperformed due to a surge in AI exports, exceeding expectations by 8.6 percentage points and 1.9 percentage points respectively, while the United States and the Eurozone lagged slightly.

Looking ahead to 2027, the energy price shock is expected to shift from a hindrance to a boost. Goldman Sachs' baseline forecast from commodity strategists indicates that Brent crude oil prices will drop to $78 per barrel by the end of 2027, with global LNG prices normalizing simultaneously, turning the drag of energy prices on global growth from 0.4 percentage points in 2026 to a slight boost.

AI capital expenditure remains the most important growth engine. Goldman Sachs predicts that global nominal AI investment will increase from $1.1 trillion in 2026 to $1.8 trillion in 2027, with the incremental growth mainly coming from an increase of over $500 billion in U.S. hardware spending. AI investment is expected to contribute about 0.4 percentage points to global GDP growth, with its contribution to the "real" GDP growth of the U.S., after excluding semiconductor investment and chip-related intellectual property exports, estimated to reach 0.6 percentage points.

In terms of fiscal and financial conditions, Goldman Sachs' GS Financial Conditions Index (GS FCI) has tightened by about 50 basis points in the U.S. and about 30 basis points in developed markets over the past three months, which will create a mild drag on growth in the coming quarters. The marginal effect of fiscal expansion is also fading, with Japan being a notable exception—tax cuts, increased defense spending, and high municipal investment plans are expected to boost Japan's GDP growth by 0.7 percentage points.

In the major economy forecasts, Goldman Sachs holds a relatively optimistic view on U.S. economic growth, expecting a growth rate of 2.4%, above the market consensus of 2.2%, while being more pessimistic about Europe, predicting a growth rate of 0.9%, below the consensus of 1.3%, primarily due to tightening financial conditions and high energy prices that will begin to manifest this winter. Goldman Sachs predicts China's growth rate to be 4.5%, slightly above the market consensus of 4.4%.

Three Major Downside Risks: Energy, Bond Market, and AI Cycle

Goldman Sachs clearly characterizes the global growth risks for 2027 as skewed to the downside and lists three main pathways.

1. Escalation of the Iran Situation. Beyond the baseline forecast, Goldman Sachs' commodity strategists assign greater weight to the upside scenario: intensified shipping attacks, damage to oil infrastructure, and a more persistent risk premium could push oil prices up to $132 per barrel. If this scenario materializes, the energy price shock will continue to drag on global growth in 2027, and unlike in 2026, financial conditions and fiscal policy will struggle to provide the same level of counterbalance.
2. Turbulence in the Bond Market. The yield curve in developed markets is currently about 85 basis points higher than at the beginning of 2026. Goldman Sachs estimates that if this increase persists, it will cumulatively drag GDP down by about 0.5% through housing, durable goods, and corporate investment channels. France's fiscal risks are particularly pronounced—10-year French government bond (OAT) yields are about 150 basis points higher than German bonds, and fiscal health indicators have raised red flags. Goldman Sachs expects that substantive discussions on fiscal consolidation will not start until after the French presidential election in April 2027 and the parliamentary elections in June, but the market may exert pressure earlier, leading to a greater drag on growth.
3. Diminishing Impact of AI Investment. Goldman Sachs notes that the stock prices of hyperscalers have shifted from a positive response to signals of higher capital expenditure in earnings call conferences from 2024-2025 to a slightly negative response in 2026, as the market begins to worry about over-investment. Additionally, the upward adjustment of capital expenditure among hyperscale companies during the third quarter earnings season has slowed, indicating that the peak of the AI investment cycle is becoming increasingly clear.

Regarding the impact of AI on the labor market, Goldman Sachs has observed early signals: in non-manufacturing sectors, the adoption rate of AI in routine business functions shows a statistically significant negative correlation with employment growth and a positive correlation with the unemployment rate—this correlation was not significant at the beginning of the year. Goldman Sachs' baseline forecast suggests that the impact of AI on the labor market will primarily concentrate in 2028 to 2029, but if the economy experiences a downturn, companies may aggressively cut hiring targets, accelerating this process.

Inflation: Progress Expected, but Upside Risks Remain

Inflation in 2026 exceeded expectations, primarily due to the rise in energy prices triggered by the Iran War, with overall global inflation calculated year-on-year in the fourth quarter reaching 3.7%, 1.3 percentage points higher than Goldman Sachs' previous forecast.

Looking ahead to 2027, Goldman Sachs believes that conditions for a decline in inflation are forming. In the U.S., the tariff transmission effect (currently contributing about 40 basis points to core PCE year-on-year growth) is expected to fully exit year-on-year statistics by next spring, combined with the fading impact of the Iran War on inflation, leading Goldman Sachs to predict that the core PCE increase will slow from 3.2% at the end of 2026 to 2.4% at the end of 2027.

However, inflation may still maintain a degree of stickiness at the beginning of 2027. Goldman Sachs lists three reasons:

• The transmission effect of rising energy prices will continue into next year, particularly in Europe, where airline ticket prices have not fully reflected the increase in fuel costs;
• Global memory price forecasts were raised again in the last earnings season, which will provide additional upward pressure on core inflation, particularly affecting the U.S.;
• Upstream cost pressures have increased and spread, with historical patterns indicating that this will keep the risk of inflation exceeding expectations relatively high before next spring.

Goldman Sachs also points out that if the Iran situation escalates again, according to adverse scenario calculations from its commodity team, overall inflation in 2027 will be 0.9 percentage points higher than the baseline, with core inflation 0.2 percentage points higher.

Monetary Policy: Rate Hikes Nearing an End, Rate Cut Path Becoming Clearer

Goldman Sachs expects the Federal Reserve to raise interest rates once in December and again in March next year, followed by initiating rate cuts in December 2027, with three additional cuts in 2028, resulting in a terminal rate of 3.25% to 3.5%. Goldman Sachs believes that the risk of U.S. interest rates is skewed towards dovishness, as the drivers of U.S. inflation are more evidently transitory, and the U.S. has the greatest exposure to the downturn in the AI cycle.

Regarding the European Central Bank, Goldman Sachs expects it to complete its final rate hike in December, followed by normalizing rate cuts starting in the fourth quarter of 2027, with a terminal rate of 2.25%. The Bank of England is expected to raise rates to 4.25% in February next year, maintaining that level before delaying the timeline for a cut to a terminal rate of 3.25% until 2028. Goldman Sachs' forecasts for the European Central Bank and the Bank of England are both more dovish than market pricing.

Japan is a major exception. Goldman Sachs expects the Bank of Japan to raise rates by another 25 basis points at the December monetary policy meeting and to continue raising rates in March and June next year, reaching a terminal rate of 2.0%, citing inflationary risks and the pressure of high global interest rates on the yen.

In emerging markets, Goldman Sachs maintains a generally dovish stance, expecting most central banks in Central and Eastern Europe, the Middle East, Africa, and Latin America to cut rates in 2027, while Asian rates are expected to remain stable or rise slightly.

Market Outlook: Positive Returns Expected, but Volatility Risks Increase

Goldman Sachs' baseline forecast indicates that both stocks and bonds will record positive returns in 2027, while commodity returns will be close to zero. However, Goldman Sachs warns that the challenges facing the market will be more severe than the macroeconomic situation itself.

For the stock market, Goldman Sachs expects the S&P 500 index's earnings growth to decline from 36% in 2026 to 11% in 2027, which remains robust, but the slowing growth rate means that concerns about the peak of the AI investment cycle will gradually intensify.

Goldman Sachs points out that the AI investment boom contributes far more to corporate earnings and market capitalization than to GDP growth—the share of S&P 500 earnings relative to GDP has reached a historic high—once the investment shock fades, the market will face questions about whether this high earnings share can be sustained. In terms of regional allocation, Goldman Sachs recommends overweighting the U.S. and Japan, neutral allocation for regions in Asia outside Japan and emerging markets, and underweighting Europe.

For the credit market, Goldman Sachs expects credit spreads to widen further in 2027, with U.S. high-yield bonds underperforming, and the tail risks of weaker borrowers potentially triggering broader turmoil in the financing market.

For the bond market, Goldman Sachs believes that real yields are at nearly 30-year highs, and the hedging value of bonds is gradually recovering. As growth risks rise in the second half of 2027 and the central bank's rate hike cycle nears its end, the negative correlation between bonds and stocks is expected to re-emerge. Goldman Sachs predicts that the yield on 10-year U.S. Treasury bonds will drop to 4.6% by the end of 2027.

In the foreign exchange market, Goldman Sachs' baseline forecast is for a moderate weakening of the dollar, with the renminbi continuing to appreciate under the support of trade surpluses. If market doubts about the "exceptionalism" of U.S. tech stocks accelerate, the dollar may experience a more significant decline, while the yen is expected to appreciate significantly due to safe-haven demand.

In terms of commodities, Goldman Sachs recommends using them as a hedging tool in investment portfolios, with European natural gas futures and TTF call options serving as asymmetric hedging means against the risk of rising energy prices. Additionally, Goldman Sachs believes that as the market cycle matures, stock index volatility is more likely to increase rather than decrease, advising investors to consider seeking deeper protection through out-of-the-money put options or replacing stock holdings with long call options.