Signage for Goldman Sachs Group Inc. is displayed at the One Raffles Link building, which houses one of the Goldman Sachs (Singapore) Pte offices, in Singapore. (Photographer: Nicky Loh/Bloomberg)

Goldman Sachs Says U.S. Exposure to the Global Slump Has Intensified

(Bloomberg) -- When America sneezes, the world catches cold, the saying goes. Now Goldman Sachs Group Inc. economists are asking whether the reverse also holds true.

While slowdowns abroad haven’t caused a recession in the U.S. in the past century, economist David Mericle and his colleagues dig into whether global threats have become more important in an interconnected world. They conclude the danger posed by other countries is higher than before, though it would still take a major pullback to potentially tip America into a downturn -- roughly a 4 percentage-point slowdown in global growth excluding the U.S.

“This is quite a high bar, though it is lower than it has been historically,” the authors write in a note Wednesday. That’s partly because exports make up a bigger chunk of the U.S. outlook and the American economy’s potential to expand is lower, making it easier to dip below zero growth.

In addition, “the last few years have provided a reminder that the impact of changes in foreign growth on U.S. financial conditions -- especially U.S. equity prices -- can be quite variable and unpredictable.”

The economists say the base-case probability of a recession over the next year of 14 percent would rise to 20 percent if global growth slowed 1 percentage point more than expected. The risk of recession would surge to 46 percent in the event of a 3-point deceleration. A 4-point moderation ups the odds to 64 percent.

“Under present circumstances a further slowdown in global growth could meaningfully boost U.S. recession odds, but it would have to be fairly large,” the authors write.

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