Global economy not at risk of recession despite China weakness

The global economy is not at a risk of a recession in spite of recent concerns over China’s economy and weakness in commodity prices, Goldman Sachs said, although it lowered its short-term outlook for global stock markets.

“The drop in commodity prices during the past year and recent economic and foreign exchange weakness in China and other emerging markets will not tip the global economy into recession,” analysts at the U.S. investment bank said in an August 24 dated note to clients, which was seen by Reuters.

The Wall Street bank reduced its short-term outlook for the equity market to “neutral”, but remained “overweight” over six and 12 months. It also maintained its view that commodities will underperform.

“We see a meaningful risk that markets are over-interpreting the collapse of oil and commodity prices as a negative growth signal,” the analysts said. The fall in prices of oil and other commodities are primarily a reflection of excess supply rather than weak demand, they said.

Goldman Sachs raised its short-term outlook for U.S. equities to neutral and lowered European equities to neutral.