Don’t look now, but Goldman Sachs is saying the economy is nearly recession-proof

Just months after almost everyone on Wall Street worried that a recession was just around the corner, Goldman Sachs said a downturn is unlikely over the next several years. An analysis Goldman conducted of the current potential risks to growth show that they are mostly muted. The report found that the pillars of the “Great Moderation” that began in the 1980s — low levels of volatility marked by sustainable growth and muted inflation, interrupted only by the financial crisis more than a decade ago — are still standing.

Investors could be excused for getting a little nervous over such calls, as optimism also was heavy in late 2007, just as the economy was about to enter the worst of the financial crisis. Goldman’s economists do not dismiss the risk of a recession, but say some of the major headwinds have dissipated.

The U.S. has become largely energy independent, Federal Reserve officials have been more vexed by a lack of inflation, and the financial system has become less levered since the crisis due to a sharp deceleration in private sector debt compared to income and more stringent regulations in the banking system.

However, elevated asset prices in stocks and a surge in corporate debt remain threats.  To be sure, there’s danger in becoming too sanguine about the economy. GDP grew at a 2.5% rate in the fourth quarter of 2007 before plummeting to an 8.4% decline in the third quarter of 2008, when Lehman Brothers collapsed and triggered a crisis that nearly crushed the entire global financial system. Goldman itself in late 2007 predicted double-digit percent gains for the stock market in 2008, a year during which the S&P 500 tumbled 37% for its worst performance since 1931. Indeed, Goldman’s relatively rosy view now is better than the Wall Street consensus.