|
Persistently high bond yields could more than double their drag on US economic growth in 2027, while rising borrowing costs threaten to weaken business investment and test the resilience of financial markets, according to a report by Goldman Sachs.
The report estimated that higher interest rates would reduce US economic growth by around 0.2 percentage points in 2027 under its baseline scenario. If borrowing costs remain near current levels, however, the drag could rise to just over 0.5 percentage points, more than twice the baseline impact. Goldman Sachs economists expect the US economy to grow close to its estimated potential rate of 2.3 per cent in 2027. However, the report cautioned that this outlook could face greater pressure if bond yields remain elevated, with higher financing costs affecting housing, consumption and business investment. If rates were to remain at current levels, we estimate the drag would more than double, rising to just over 0.5 pp," the report said. The report also highlighted concerns raised by Mark Zandi, Chief Economist of Moodys Analytics, who described the US economy as vulnerable rather than resilient and views the distribution of possible outcomes as very flat and heavily skewed toward darker tail scenarios, the report said. He put the odds of existing vulnerabilities pushing the economy "completely off the rails" at around one in three. "The underlying labour market and household fundamentals point to very tenuous growth," Zandi added, citing weak hiring and stagnant or declining real wage growth that could weigh on household purchasing power. The pressure from higher rates could extend beyond economic growth. Goldman Sachs estimated that higher refinancing costs could reduce business investment growth by around 0.3 percentage points in 2027 and subsequent years. That impact could more than double if borrowing rates remain near current levels, the report said. At the same time, investment in artificial intelligence (AI) infrastructure has remained resilient despite higher interest rates and input costs. Goldman Sachs strategists expect AI-related capital expenditure to maintain a healthy pace in 2027, although the report flagged risks from rising leverage and the growing links between investment and financing across the AI sector. The report noted that global bond yields had climbed to multi-decade highs even as economic growth and financial markets remained broadly resilient. However, further increases in yields or sustained volatility could test that resilience, particularly if inflation pressures prevent borrowing costs from easing. The outlook for 2027 will therefore depend partly on whether yields moderate or remain elevated enough to deepen the pressure on economic activity and corporate investment, the report said. (ANI)
|
