Goldman Sachs Group Inc Chief Executive Lloyd Blankfein offered shareholders a guardedly optimistic forecast for economic recovery, saying investors are now talking about when, not if, markets will rebound.

My hope is, and if I had to guess I'd say, that business feels like it's off its lowest ebb, Blankfein said at the bank's annual shareholder meeting, a day after Goldman received a clean bill of health from the U.S. government stress tests.

The former commodities trader hedged his comments, though, telling shareholders, It's hard to make those kinds of forecasts. You have to make them every minute, because markets are so volatile.

Blankfein said Goldman, which slashed its ranks of bankers and traders amid one of the worst market environments since the Great Depression, does not plan to make further job cuts.

We have no plans on the horizon for downsizing, but we'll respond to the environment, he said. We don't feel the pressure to downsize now.

Blankfein told shareholders the tone of the markets had greatly brightened since the darkest days of last fall, when the government scrambled to avert the collapse of Goldman and other banks caught in a spiraling credit crisis.

By comparison, he said, investors today are talking about an eventual recovery.

We are clearly in a very bad recession, but if you think about the rhetoric applied to the markets, that set of probabilities is vastly diminished, he said. The debate now is how soon will the economy bottom out, he said.

The end is already in sight, in the sense we're talking about it, and we have some confidence we will reverse out of (the downturn). And that is what I think is making the markets cheerier than they have been for while, and which has surprised people.

Credit markets have improved, as illustrated by Goldman, Morgan Stanley and other banks tapping bond markets without guarantees from the government.

There is more reason for optimism, though it's not upbeat; it's sober, Blankfein said. We have work to do, but it's the kind of work we've done before.

Goldman shares were up 3.2 percent in Friday afternoon trade, bringing their gains for this year to 64 percent, compared with a 27 percent rise in the Amex Securities Broker-Dealer index <.XBD>.

Shareholders in Wall Street's top investment bank, which converted to a bank holding company during last fall's financial crisis to improve access to government funding, reelected all of its directors.

Those voted back included Stephen Friedman, who on Thursday resigned as chairman of the New York Federal Reserve Bank's board of directors amid questions about his purchases of Goldman stock and potential conflicts of interest.

(Reporting by Joseph Giannone; Editing by Steve Orlofsky and John Wallace)