With the Europe debacle taking center stage, the global economy has been taking a beating. While Greece teeters near default, China slowdown concerns now have the Shanghai Index at 2009 levels. Furthermore, the S&P 500 officially entered bear market territory today, falling more than 20% from its highs made in April. Now, Goldman Sachs has cut its global forecast for 2012 and projects a “mild” recession for the euro zone this quarter and the first quarter of 2012. The bank also lowered its forecast for key economic indicators.
On Monday, Goldman Sachs lowered its 2012 global GDP forecast to 3.5%, down from its previous 4.3% estimate. Last week, Citigroup made a similar move by reducing its 2012 global GDP forecast to 2.9%. Goldman also cut its forecast on many metals. The bank cut its 12 month aluminum forecast by 10.2% to $2,650 per ton, cut its 12 month nickel forecast by 8.7% to $21,000 per ton, and also cut its 12 month zinc forecast by 11.1% to $2,400 per ton. Two of the more telling forecast cuts involve copper and oil.
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Goldman Sachs reduced its outlook for two key indicators that many investors keep an eye on. The bank cut its 12 month forecast of copper to $9,500 per ton, down from their previous estimate of $11,000 per ton. However, this would still suggest substantial upside from current prices of copper. Goldman explains, “In short, if we can avoid a global financial crisis, we can avoid a global recession.” However, Goldman’s chief US economist estimates a 40% chance of recession in 2012. The bank also reduced its 2012 Brent oil forecast to $120, down from $130. Last week, Morgan Stanley also cut its Brent oil outlook to $100, down from $130. Both banks cite concerns over global demand as the reason for the reduction.
Copper related companies such as Freeport-McMoRan and Southern Corporation have both seen their shares sink about 48% year-to-date, underperforming the broad market by a large margin. Freeport’s CEO gave a concerning outlook for copper last month, as China slowdown fears surfaced. Richard Adkerson said, “A China slowdown has more of an impact than anything else.” He goes on to describe copper as a window for the global economy, and expects slower growth rates to continue. FCX is the world’s largest publicly traded copper producer, with operating, expansion, and growth projects in the copper industry. Oil companies such as Exxon Mobil and Chevron have faired better, as both stocks are relatively flat for the year. In comparison, the Dow and S&P 500 are down about 8% and 12%, respectively.