Goldman Sachs Global View: Oil Price Risks Ease, Macro Concerns Decline

Overview

This Goldman Sachs global macro report focuses on easing energy shocks, US growth and recession risks, major central bank policy paths, the growth outlook for Japan and China, and the sustainability of the AI trade. The core conclusion is that the US-Iran agreement reduces the worst-case energy shock and US recession risk, but global growth remains modest and there is still a gap between policy and market pricing.

Core views

The report's key views are: first, the US-Iran agreement makes Goldman less worried about downside scenarios for the US economy, with the 12-month recession probability falling to 15%; second, Brent crude is expected to be USD 80/barrel by the end of 2026, but the Strait of Hormuz, the pace of supply recovery, and near-term oversupply could all create two-way risks; third, US growth in the second half of 2026 is nudged up to 2%, though AI capex contributes only limited actual GDP and consumer cash flow remains under pressure; fourth, labor market growth may slow from the recent strong nonfarm pace to slightly below the roughly 60k breakeven level; fifth, despite a more hawkish FOMC, Goldman still expects no rate hike in the base case; sixth, the Bank of Japan has raised rates to 1% but can move slowly; seventh, China's near-term growth is being weighed down by lower oil prices, fading consumer trade-in support, and slower fiscal spending, though a rebound is expected in Q3; eighth, the AI trade still has fundamental support, but valuations limit how much further it can rally.

Analysis framework

The report uses a global macro top-down framework, linking geopolitics, oil prices, real income, GDP, employment, inflation, central bank policy, and asset prices. The US section focuses on comparing Goldman Sachs forecasts, market pricing, and scenario probabilities, while the global section discusses Japan, China, European rates, and AI-related equities separately.

Methodology notes

• Macro Forecast12-Month Recession Probability Assessment

  US recession risk

  The next 12 months' US recession probability is adjusted using energy risks, labor market resilience, and changes in the growth outlook; this time it is cut from 25% to 15%.

• Growth DecompositionAI Investment Impact on GDP Analysis

  AI capex and actual GDP

  The analysis distinguishes the impact of AI capex on real economic activity from its impact on official GDP statistics, emphasizing that imported equipment and some semiconductor investment may not be fully reflected in US GDP.

• Labor MarketSlack Tracker

  labor market slack indicator

  A composite of ten labor utilization indicators is used to assess the employment market; the report says the indicator has recently started to show gradual easing again.

• Inflation AnalysisCore PCE vs Trimmed Mean PCE Comparison

  inflation pressure identification

  Potential inflation pressure is judged by comparing core PCE with the Dallas Fed trimmed mean inflation measure; the report believes the trimmed mean remains milder than core PCE.

• Interest Rate ScenariosFederal Funds Rate Scenario Analysis

  baseline path, probability-weighted path, and market pricing

  Hike, higher inflation/higher growth/higher terminal rate, baseline cuts, and recession scenarios are assigned probabilities to compare Goldman Sachs' path with market pricing.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Brent crude

  core variable for energy prices and macro risk

  Strengths

  As geopolitical risks ease, oil price shocks decline, helping real income and easing inflation.

  Weaknesses

  Supply restoration, Strait of Hormuz risks, and near-term oversupply could all create volatility.

  Comparison

  The report gives an end-2026 forecast of USD 80/barrel and stresses that risks are two-sided.

  Risks

  Renewed turmoil in the Middle East, slow oil flow recovery, or too rapid a supply release.

• US equities / S&P 500

  affected by AI capex, earnings, and financial conditions

  Strengths

  Continued upside surprises in AI capex, strong S&P earnings, and fewer private-sector financial imbalances support further market gains.

  Weaknesses

  AI-related stock valuations are already elevated, making further large gains harder to justify.

  Comparison

  Relative to performance after macro shocks, US financial markets have already largely absorbed the hawkish FOMC shock.

  Risks

  Repricing of AI trade sustainability, a higher rate path, or earnings below expectations.

• US rates

  driven by FOMC communication, inflation, and the growth path

  Strengths

  If inflation cools and growth remains modest, Goldman thinks most voting members may still favor unchanged rates.

  Weaknesses

  The FOMC dot plot and the Chair's communication are more hawkish, increasing upside risk.

  Comparison

  Goldman sees a lower probability of hikes than market pricing.

  Risks

  Sticky core inflation, stronger-than-expected growth, or lower Fed transparency leading to volatility in financial conditions.

• Japan rates / JPY macro assets

  affected by Bank of Japan hikes and fiscal sustainability

  Strengths

  Potential inflation of about 1% and modest growth allow the BOJ to hike gradually.

  Weaknesses

  Fiscal sustainability is the main challenge.

  Comparison

  The BOJ policy rate rises to 1%, and Goldman expects another 25 bp hike about every six months.

  Risks

  Fiscal expansion pushes up long-term rates, reversing the improvement in debt-to-GDP trends.

• China macro assets

  affected by domestic demand, exports, oil prices, and fiscal timing

  Strengths

  The fading of temporary drags, reversal of oil shocks, and higher fiscal spending could drive a rebound in Q3.

  Weaknesses

  Domestic demand growth is far slower than exports, widening structural imbalances.

  Comparison

  The downside surprises in April and May were mainly due to oil shocks, fading consumer goods trade-in support, and slower fiscal spending.

  Risks

  Heavy rainfall, insufficient policy response, and a wider current account surplus creating negative spillovers for trading partners.

Key data

• US 12-Month Recession Probability15%Goldman Sachs cuts it from 25% to a long-run normal level of 15%.
• Brent Crude ForecastUSD 80/barrelGoldman Sachs' commodities team expects Brent to be around USD 80/barrel by the end of 2026, with risks in both directions.
• US H2 2026 GDP Growth Forecast2%The sequential growth forecast is nudged up, supported by lower gasoline prices, AI wealth effects, and capex.
• Recent US Nonfarm Payroll Growth188kIt has been at a relatively high level over the past three months; the report expects it to slow.
• US Employment Breakeven Estimateslightly below 60kGoldman expects job growth to slow to slightly below this level.
• 2027 Q4 Median Core PCE Inflation Forecast2.5%The median forecast among FOMC participants rises to 2.5%.
• Bank of Japan Policy Rate1%The Bank of Japan hikes 25 bp to 1%, the highest in 30 years.
• Japan 2026 GDP Growth Forecast0.5%The report sees Japan's growth as still modest.
• Japan Potential Inflationabout 1% y/yMeasured using the BOJ's CPI estimate excluding food, energy, and policy effects.

Impact & implications

For investors, the message is that easing energy tail risks are supportive of risk assets and US growth expectations, but they do not imply that the global economy is entering a strong-growth phase. The rates market may be overpricing the chance of Fed hikes; if inflation cools and growth remains modest, unchanged rates remain Goldman Sachs' base case. In equities, AI capex and earnings still support further upside for the broad index, but elevated valuations in AI-related stocks mean the hurdle for future excess returns is higher. In China, short-term drags may ease in Q3, but the gap between domestic demand and exports remains a medium-term issue.

Risks

• A renewed disruption to oil flows and prices from the Strait of Hormuz and broader Middle East tensions.
• Rapid near-term crude supply releases could create oversupply in an already surplus-prone market.
• Slower US job growth, with household employment, the employment-to-population ratio, and slack indicators not yet confirming meaningful improvement.
• Core inflation falls more slowly than expected, prompting a more hawkish FOMC.
• Reduced Federal Reserve transparency could amplify volatility in financial conditions and economic outcomes.
• Elevated valuations in AI-related stocks could limit future upside.
• Japan's fiscal expansion and rising long-term rates could weaken debt sustainability.
• A continuing widening of the gap between domestic demand and exports in China could intensify external imbalances.

What to watch

• Whether Brent crude stays close to, or moves away from, the USD 80/barrel path by the end of 2026.
• Whether the US 12-month recession probability remains near 15%.
• Changes in US real disposable income and cash-flow-based income in the second half of 2026.
• Whether nonfarm payrolls slow from around 188k to slightly below the 60k breakeven level.
• Whether core PCE and trimmed mean PCE continue to decline.
• Whether FOMC voting members continue to support unchanged rates.
• Whether AI capex, S&P earnings, and AI-related stock valuations remain aligned.
• Whether China sees a policy-supported growth rebound in Q3.
• The BOJ's subsequent path of 25 bp hikes about every six months and the trend in Japan's long-term rates.