Our 2017 Growth Outlook...The Trump Presidency...Why AI is the ‘Apex’ Technology

Insights on markets, industries and the global economy [Goldman Sachs] [BRIEFINGS] November 21, 2016 2017 Macroeconomic Outlook: A Pickup in Growth With Downside Risks The wait for a breakout year in global growth continues. According to Goldman Sachs Research's 2017 Macroeconomic Outlook, global real GDP growth will be at the top of the 3% to 3.5% range that's become the norm of the last five years, but risks to the forecast are elevated by political uncertainty in the US and Europe and potential impacts of a stronger dollar on emerging markets. Among the key expectations embedded in the GS forecast are: - Continued momentum from improved financial conditions globally - A near-term boost to growth and inflation from a US fiscal stimulus package under President-elect Trump, though one that's likely smaller than initial proposals - A series of Federal Reserve interest rate increases that will push up long-term interest rates and temper growth - Greater interest rate divergence between the US, Europe and Japan and upward pressure on the dollar Taxes, Trade and More in a Trump Presidency As President-elect Trump makes the transition from the campaign trail to the White House, investors will be watching carefully to determine the economic issues at the top of his agenda. Tax reform, infrastructure spending, trade policy, and the repeal of the Affordable Care Act are widely considered to be on the shortlist for the Republican-controlled government, but Goldman Sachs Research's Alec Phillips says policy may take longer than expected and come in a slimmed-down form. "If we look at Trump's tax plan, for instance... [Congress] would be casting a vote to raise the budget deficit to over a trillion dollars a year. And so, on the one hand, you can say a tax cut of 2% of GDP sounds like it could happen. On the other hand... a proactive vote to raise the budget deficit to over a trillion dollars a year seems less likely." Phillips, GS Research's political economist, discusses where Trump can act on his own without Congress, why corporate tax changes are more likely than personal tax cuts in 2017 and how Trump may reshape the leadership of the Federal Reserve on the latest episode of our podcast, Exchanges at Goldman Sachs. [Listen to podcast] [Subscribe on iTunes] SHARE: [twitter] [facebook] [LinkedIn] [email] Builders + Innovators Share Entrepreneurship Tips The companies featured at this year's Goldman Sachs Builders + Innovators Summit represented a cross-section of the American economy: industrials, consumer retail, technology and others. When we asked founders and CEOs to share their most important lessons as entrepreneurs, many of them returned to the concept of resiliency. "Every day is going to bring something that you don't know, that you weren't expecting," said Heidi Zak, co-founder of ThirdLove, which is changing the way women shop for bras by offering a customized fitting through its innovative mobile app. "So you really need to embrace that and take the opportunity every day to learn something new." Above: Heidi Zak. [Watch video] SHARE: [twitter] [facebook] [LinkedIn] [email] The Real Story of the Pilgrims What is the true story of America's first Thanksgiving? The image of Pilgrims and Native Americans giving thanks for a bountiful harvest may be more myth than reality. In his documentary film [The Pilgrims,] Ric Burns highlights the sacrifice and endurance that defined not only the Pilgrims but also the Wampanoag people with whom they partnered. In 1620, in the midst of a brutal winter, "you have these two absolutely kicked-to-the-curb populations," Burns said during a visit to Goldman Sachs as part of our Talks at GS series. "The Pilgrims on the one hand, and the Wampanoags on the other, reaching out to each other in desperation to form an alliance." It's perhaps a less cheerful version of Thanksgiving, he acknowledges, but it comes closer to capturing the story of the people who helped establish the spiritual and political consciousness of the modern United States. Image courtesy Steeplechase Films, WETA and American Experience. [Watch video] SHARE: [twitter] [facebook] [LinkedIn] [email] Briefly... on Artificial Intelligence, the 'Apex Technology' Whether it's blockchain, drones or the Internet of Things, a handful of innovations are promising to reshape the competitive landscape of the information age. But artificial intelligence sits at the apex of them all, says Heath Terry, head internet analyst for Goldman Sachs Research, with the potential to disrupt every industry. He explains why artificial intelligence or "AI" is now within reach for companies and how it's already creating value. Heath, you've said that machine learning -- a branch of artificial intelligence--will be a key source of competitive advantage for global industries. What is it, and why is it so important? Heath Terry: It's basically the ability for computers to learn from examples and experience, rather than relying on hard-coded rules. For instance, let's say you program a computer to recognize trains. If you show it a picture of a toy or cartoon train, the computer may falsely identify it as the real thing. But with machine learning, the computer can teach itself to better sort out the replicas and illustrations from actual trains in the future. When you combine this ability with the vast amount of new data we're getting from connected devices, sensors and systems, you're looking at a technology that has the potential to reduce costs and accelerate growth in virtually every industry, as well as end the [slump in labor productivity] that's nagged the US economy for the last decade. We've heard about this technology for years -- why do you see it taking off now? HT: Part of the reason is the massive growth in data sets that I mentioned earlier. AI becomes more effective with more data. We've also seen dramatic advancements in computing power and the availability of open source platforms. Together these developments have increased the amount of information available for machines to learn from and the complexity of problems they can teach themselves to solve. What are some of the most promising use cases? HT: We're still in the early stages, but already there are so many examples. In healthcare, for example, machine learning can help improve diagnosis speed and accuracy and reduce costs by learning from past physician diagnoses and using that information to analyze new patient data (See also: ["The Cloud Can Help Cure Cancer"]). Energy is another promising use case. Machines can be trained to recognize the signs of potential systems failure on an oil rig weeks or months before it happens. This means safer, more efficient energy production, which lowers the cost to produce and thus the cost to the consumer. Are companies building out this technology themselves, or are they outsourcing it? HT: It's a combination of both. Those that have the people and the data will likely invest heavily in AI capabilities, and we're also expecting professional service providers to step up to help bridge the gap for firms that lack the talent pool. But we think the biggest driver of new market creation will be the AI-as-a-service industry that is developing within cloud platforms, where companies turn to outside providers rather than investing in do-it-yourself AI. Goldman Sachs Media Highlights Financial Advisor - November 14 [Hugh Lawson op-ed: "Are Markets Missing the Mark on Sustainability?"] Institutional Investor - November 14 [Darren Cohen among Institutional Investor's 'Fintech Finance 35'] CNBC - November 15 [Gary Cohn on the Fed, the bond market and the US dollar] (4:10) [Subscribe] The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. 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