Economic Recovery Charts and Populist Trends – No Direct Misconduct Leads

Exhibit 24: US Real GDP During the Longest Post-WWII Recoveries post-WWII period. Beginning of Recovery = 100 60 Mar-61 Dec-82 50 Mar-31 Aug-61-Nov-66 Current (Jun-09) Did NOT Trigger 40 Recession 30 Mar-83-Aug-84 Did NOT Trigger Recession 20 00 Feb-94—Apr-95 Did NOT Trigger Recession Dec-86—-Mar-89 Triggered Recession Four of the five tightening cycles that did not trigger a recession occurred during the three longest recoveries in the Aug-67—Aug-69 Triggered Recession CAGR: 4.9% CAGR: 4.4% Jun-99—Jul-00 Did NOT Trigger CAGR: 2.1% Recession @ Denotes Beginning of Fed Tightening Cycle © Denotes End of Fed Tightening Cycle 90 ~- 0 4 8 12 16 20 24 28 32 36 40 Quarters After Recession Trough Data as of December 2016. Source: Investment Strategy Group, Bloomberg, National Bureau of Economic Research. In our 2016 Outlook and our 2016 Insight report, Walled In: China’s Great Dilemma, we stated that China was unlikely to have a hard landing over the next two years (i.e., 2016 and 2017). We believe the view still holds. We do not expect a hard landing in China that would destabilize the US economy in 2017, but the risks grow significantly in 2018 and 2019. As we discuss below, China may nevertheless represent a geopolitical risk in 2017. Historically, since WWII, the odds of a recession occurring over a 12-month period have been 18%. Our composite recession model, incorporating end-of-year financial and economic data, estimates the probability of a recession in 2017 at 23%. Once we incorporate the likely passage of a fiscal stimulus package of tax cuts and infrastructure investments in the latter half of 2017, the probability of a recession this year declines to about 15%. Rising Influence of Populist Parties in the Eurozone Since the election of Prime Minister Alexis Tsipras and the Syriza Party in Greece in January 2015, populism has been gaining momentum across Europe. The support for populist parties has increased to varying degrees in Spain, Greece, Italy, France, the Netherlands, Germany and Austria. The common themes among populists have been anti-immigration and anti-European Union. Outside the Eurozone, the 2016 Brexit vote in Great Britain has been interpreted as a populist vote against immigration from Eastern Europe, the Middle East and North Africa, as well as against the bureaucracy of the European Union. The increasing enthusiasm for populist parties in Europe raises two questions. First, will any of the more extremist parties win enough support to break away from the European Union? In France, for example, upcoming elections in May 2017 are likely to pit Francois Fillon of Les Républicains against Marine Le Pen of the far right Front National. Le Pen has promised a referendum on whether France should stay in the European Union, and, should she win, questions about the viability of the Eurozone will surface immediately.°* While polls show Fillon well ahead of Le Pen, polls have been wrong on the UK and Italian referenda and the US election. The Eurasia Group, for one, assigns a 30% probability to a Le Pen victory.*” Second, to what extent will the rise of populism influence policies in the Eurozone? Here, Germany will probably provide a litmus test. Chancellor Angela Merkel and her coalition government are likely to respond to recent terrorist attacks there by proposing a stronger police and military presence, according to the Eurasia Group. Security checks will probably be increased as well, since at least 800,000 asylum-seekers entered Germany with minimal security checks and terrorist suspects have already been arrested among them.°* With German elections scheduled for September 2017, it remains to be seen whether Chancellor Merkel will adjust her immigration policy. 28 | Goldman Sachs | JANUARY 2017 HOUSE_OVERSIGHT_014561