Economists at Goldman Sachs have now revised their chances of entering a recession over the next year. They now see a 30 percent chance of entering a recession in the next year, up from 15 percent in the first, and a 25 percent conditional probability of entering a recession in the second year, if one is avoided in the first, according to Goldman. Latest note by Sachs.
“We now view recession risk as higher and more front-loaded. The main reason is that our baseline growth trajectory is now lower and we are increasingly concerned that the Fed will remain firmly on high headline inflation and consumer inflation expectations. would feel compelled to react if energy prices rise further, even if activity slows sharply,” according to a Bloomberg report citing a note written by economists led by Jan Hetzius.
Goldman economists said the comparisons are stark with the 1960s and 1970s, but expectations for warmer wage growth and higher inflation are lower today than they were at that time.
Economists have retained their growth forecast of 2.8 per cent for the second quarter. However, they cut their outlook from the third quarter of this year to the first quarter of 2023, and now forecast growth of 1.75 percent, 0.75 percent and 1 percent, respectively, in all those quarters.
Meanwhile, economists at BofA Securities also see a nearly 40 percent chance of a US recession next year, with inflation remaining consistently high, according to a Reuters report.
They expect US GDP growth to slow to nearly zero by the second half of next year, “as the impact of tighter fiscal conditions cools the economy,” while they see a “moderate” rebound in growth in 2024. .
BofA global economists lower their global growth projections, citing inflation, war Ukraine and the COVID-related lockdown in China.
He now expects global economic growth to be 3.2 percent. He said that he has projected the global growth rate to be 4.3 percent by 2022.
The US Federal Reserve also said last week, “Russia’s invasion of Ukraine is causing tremendous human and economic hardship. The aggression and related events are creating additional upward pressure on inflation and impacting global economic activity.” In addition, the COVID-related lockdowns in China are likely to lead to increased supply chain disruptions. The Committee is extremely mindful of inflation risks.”
The US central bank raised 75 basis points (bps) to control high inflation. This is the biggest increase in interest rates since 1994. It had earlier planned a 50-bps hike for the June meeting, but US consumer inflation eased to a four-decade high of 8.6 per cent in May, higher than expected.
According to the latest data, consumer price inflation in the US rose 8.6 percent year-on-year in May, the biggest increase since December 1981 and followed a 8.3 percent increase in April. In the US, high fuel prices and expensive food led to the rise in prices.
Natural gas prices rose 8 percent in May, the highest rate since October 2005, while electricity rates also rose 1.3 percent. Food prices rose 1.2 percent in May due to the impact of supply chain disruptions caused by the Russo-Ukraine war. Prices of dairy and related products also registered the biggest increase since July 2007.
The US Treasury has rallied since early April and is above the 3 percent mark.
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