Blankfein Says Lack of Business Risk Constrains U.S. Growth

Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said a lack of U.S. business appetite for risk is constraining a recovery in the world’s largest economy.

The “U.S. feels like it is recovering but I wouldn’t say that it is quite healthy yet,” Blankfein told a business group today in Sydney. “It is a very poor time to take risk and without risk taking there is less growth.”

Economic growth in the U.S. will slow to 1.8 percent this year from the 2.2 percent expansion in 2012, according to economists surveyed by Bloomberg. Mergers and acquisitions, while improved, haven’t fully recovered since the global financial crisis, said Blankfein, whose firm topped the world rankings for takeover advice in the first half of 2013.

Deal transactions worldwide reached about $490 billion in the second quarter, up 3 percent from the previous three months. They were down about 10 percent compared with the same period in 2012, according to data compiled by Bloomberg.

Global rule changes aimed at the finance industry are set to continue as society opts for more regulation and less risk-taking following the global crisis, Blankfein said.

“When they see the consequence of it, they will decide every year whether that is the right balance,” he said. “You will have regulation and you will have re-regulation if it turns out to be excessive.”

Courageous Bernanke

Blankfein said U.S. Federal Reserve Chairman Ben S. Bernanke showed courage and skill in responding to the financial crisis. “So far he has done pretty good,” he said. “The U.S. is very well off for having him in the seat.”

Bernanke will trim in September the Fed’s monthly bond buying to $65 billion from the current pace of $85 billion, according to half of the economists surveyed by Bloomberg in a July 18-22 survey. Blankfein said he expects Fed policy will be “very, very easy for a very long time.”

Bernanke’s second four-year term expires in January. While he has declined to describe his plans, President Barack Obama said last month the Fed chairman has stayed in his post “longer than he wanted.”

The U.S. economy grew an annualised 1.8 percent in the first quarter, less than originally estimated, as a payroll tax increase hurt consumer spending.

Europe Behind

Blankfein said pessimism lingers over Europe. “I’d say Europe is half a cycle behind the U.S.,” he said. “As a consequence the pessimism hangs in the air a little bit more.”

The International Monetary Fund said on July 25 that the euro area risks years of economic stagnation if it doesn’t bolster its banks and employment. The Washington-based fund cut its global economic growth forecast on July 9 for the fifth consecutive time, saying a leveling off in China and the risk of capital outflows present new challenges to nations that have propelled the world economy.

Developing countries will expand 5 percent this year, down from a 5.3 percent forecast in April and an annual average of 6.6 percent during the past decade, according to the IMF.

While the so-called BRIC economies of Brazil, Russia, India and China will probably continue to expand, it wouldn’t be surprising if their growth was volatile, Blankfein said.

China is shifting from a goal of maximising growth at all costs to one where there is a minimum pace of expansion while the economy becomes more sustainable, he said.

“It is very, very probable and certain that the BRICs will continue growing and will have the highest growth rate and give the world much of its growth,” Blankfein said.