HONG KONG (BLOOMBERG) – Major economies will not fall into monetary policy-driven recessions over the next year, Goldman Sachs Group said, citing early interest rate hikers to buttress its view.

Goldman Sachs looked at nine countries that were among the first to tighten, mostly emerging economies in Latin America and central and eastern Europe, as well as New Zealand. It found that none showed signs of recession given that their labour markets continued to hold up.

Goldman Sachs said three main factors are supporting these economies:

  • Strong balance sheets supporting the drawdown of excess savings and rapid consumer credit growth
  • Pent-up labour demand that has supported job growth in several economies
  • Reopening is still boosting growth

Overheating labour markets and weakening exchange rates are among the negatives, although there is some evidence that supply chain crunches are easing and sequential core inflation may have peaked in most economies, according to Goldman Sachs.

While it is too early to tell if the economies that hiked early will ultimately contract, the evidence so far suggests that they may avoid a hard landing.

“Their resilience supports our forecast that no major economy will enter a monetary policy-driven recession over the next year,” Goldman Sachs chief economist Jan Hatzius and his team wrote in the note.

“Coupled with the persistence in inflation and its drivers, this resilience suggests some upside risk to terminal rates among the later hikers relative to current market pricing.”