2017 OUTLOOK te ey ; = eat Lee ae ee = (a ses = SECTION | 6 Half Full We continue to view the glass as half-full—if 25 The Risks to Our Outlook not full—when it comes to the US economy. 26 Pace of Federal Reserve Tightening 8 This Recovery in Context—An Update 27 Low Expectations of a US Recession 9 A Hangover from a Crisis 28 Rising Influence of Populist Parties 10 Secular Stagnation: Unfavorable in the Eurozone Demographics 29 Geopolitical Hot Spots Get Hotter 12 Secular Stagnation: Declining Productivity Growth 30 Terrorism Escalates 14 Mismeasurement of GDP Statistics 30 Cyberattacks Continue 18 Poor Policies in Washington 31 China Submerges Under Its Debt Burden and Capital Outflows 19 A Steady Onslaught of External Shocks 33 US-China Relations Deteriorate 20 In Summary Under the Trump Administration 20 One- and Five-Year Expected Total Returns 35 Key Takeaways 24 Our Tactical Tilts We expect a favorable global economic and policy backdrop in 2017, but there is no shortage of risks. We recommend clients stay invested in US equities with some tactical tilts to US high yield and European equities. 4 | Goldman Sachs | JANUARY 2017 HOUSE_OVERSIGHT_014537