Investment Strategy Group
2009 Outlook
January 2009
This material has been prepared by the Investment Strategy Group (“ISG”), which is part of the Investment Management Division of Goldman
Sachs and is not a product of the Goldman Sachs Global Investment Research Department. This information is provided to discuss general market
activity, industry or sector trends, or other broad-based economic, market or political conditions. This material is for informational purposes only, is
not a solicitation and no action is being solicited based upon it. It does not take into account the particular investment objectives, restrictions, tax
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assurance that the performance shown herein can or will be achieved. Any customization of these models should be discussed with your Private
Wealth Advisor and may differ significantly from the ISG models shown herein.
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I. Economic Outlook
US Economic Scenarios: End-2009
Good Case (30%) Central Case (60%) Bad Case (10%)
Real GDP Growth – Q409/Q408 >(0.75%) (0.75)-(1.25)% 2.75% 2.25 – 2.75% < 2.25%
Inflation (Core CPI) – Q409/Q408 0.75 – 1.25% 0.25 – 0.75% <0.25%
Inflation (Headline CPI) – Q409/Q408 0.75 – 1.25% 0.25 – 0.75% <0.25%
• We expect that the US economy will contract through the end of 2008 and 2009. Our central case includes 4-5
quarters of negative consumption and residential investment growth, and an even longer contraction in non-
residential investment. We also expect that net exports will slowly become less of a contributor to growth.
• Headline news will remain unpleasant with reports of unemployment levels reaching and possibly exceeding 8%
and of bankruptcies reaching levels last seen in the early 1980s and early 1990s.
• In addition to the 50 bps cut on October 29th, the Fed eased again in December, bringing the Fed Funds rate close
to zero. As this rate cannot fall below zero, we expect the Fed to continue supporting the economy and the financial
sector through aggressive quantitative easing and various liquidity measures.
This material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global
Investment Research Department. 2
U.S. Economic Growth Outlook
Contributions to GDP Growth
Component Share of GDP 2008 (Q1 08 / 2008 (Q2 08 / ISG Central Case: 12-Mo.
Q1 07) Q2 07) Forward (Q4 09 / Q4 08)
Consumption 70% 1.0% 0.9% -0.1%
Residential Investment 5% -0.9% -0.9% -0.2%
Non-Residential Investment 12% 0.7% 0.5% -1.3%
Change in Inventories -- 0.0% -0.4% 0.0%
Government 18% 0.5% 0.5% 0.7%
Net Trade -5% 1.4% 1.7% -0.1%
Total 100% 2.5% 2.1% -0.75/-1.25%
This material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global
Investment Research Department. 3
Sizing the Length and Depth of the US Downturn
1. US Real GDP Growth (% YoY) – ISG Central Case Scenario 2. US Real GDP – Cumulative Peak to Trough Contractions During
Previous Recessions
4%
(% Change from Peak to Trough)
3% 2.8%
2.5% 0.0%
% YoY
2.1%
2% % QoQ - Annualized
0.9% 0.7% -0.5%
1% 0.7%
0%
-1.0%
-0.5% -0.5%
-1% -0.7%
-1.0% -1.1%
-1.6% -1.3%
-2%
-1.5%
-2.5% -2.5%
-3%
-3.4%
-4% -2.0%
-5%
-5.0%
-2.3%
-2.5%
-6%
Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 -2.6%
-2.7%
-3.0%
ISG Central Case
1973-75 1981-82 1990-91 2008-09
ISG Central Case
• US GDP stands at $14.3 trillion. • In our view, this recession will be worse than the
one in the early 1990s, and more along the lines
• We expect the US economy to contract over the next of what we witnessed in 1973-75 and 1981-82.
4-5 quarters with a couple of quarters experiencing a From high to low, we anticipate a cumulative
decline of over 2.5% on a year over year basis and decline in GDP of 2.6%.
between 3-5% on a quarter over quarter annualized
basis.
Source: Investment Strategy Group, Datastream
This material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of the Goldman Sachs Global
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Investment Research Department.
ISG Global Outlook Scenarios
12-Month Forward GDP and Inflation
Latest GDP 2009 GDP Latest Headline 2009 CPI Inflation
Country
(Q3 ’08) Q409/Q408 Inflation Q409/Q408
US 0.8% -1.25/-0.75% 1.1% 0.25-0.75%
Eurozone 0.6% -0.5/0% 3.2% 0.25-0.75%
UK 0.2% -0.5/0% 4.1% -0.75/-0.25%
Japan -0.5% -1.0/-0.5% 1.7% 0.0-0.5%
EM Asia 8.7% 4.5-6.5% 6.8% 0.75-2.75%
EM Latin America 5.4% 0-2% 7.6% 6.5-8.5%
Russia 6.2% -1/1% 13.7% 9.5-12.5%
Source: Investment Strategy Group
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