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Goldman Sachs sees 'upside risk' for US economy

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Goldman sees 'upside risk' to US economy

Remember last year when China devalued its currency and the market went nuts? Well, so much for that.

The subsequent tightening in financial conditions that came with the bold currency move has vanished, according to Goldman Sachs. The bank said its proprietary Financial Conditions Index has returned to its August 2015 level, providing a bright spot in an economy that otherwise has been lackluster.

"Each of the key components (in the index) — long rates, the dollar, equity prices and credit spreads — has retraced most or all of its prior deterioration," Goldman economists Jan Hatzius and Chris Mischaikow said in a note to clients. "The implications for U.S. growth are quite positive."

At a time when markets have been prone to quick shifts, banking on a longer-term prospects is risky. Goldman, though, sees reason for optimism.

"We think financial conditions have turned from a significant downside risk to our growth forecast in early 2016 to a moderate upside risk at present," Hatzius and Mischaikow said.