The US economy could get hit in three ways if there's a recession, expert says

More than 50 per cent chances of recession hitting in next 18 months, TD Securities analyst says

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Published: Tue 12 Jul 2022, 4:01 PM

Last updated: Tue 12 Jul 2022, 5:18 PM

The chances of US going into recession by 2023 is more 50 per cent, said an expert from TD Securities.

According to Richard Kelly, head of global strategy at TD Securities, rising petrol prices combined with aggressive Fed policies and a slowing economy are among the three main risks.

The economy could slip into a technical recession towards the end of the year. Analysts will be closely watching the Bureau of Economic Analysis on July 28 for early estimates on that, he was stated as saying in a CNBC report.

“You really have three shots at a recession right now in the U. economy. We haven’t even hit the peak lags from gas prices, and Fed hikes really won’t hit until the end of this year. That’s where the peak drag is in the economy. I think that’s where the near-term risk for a US recession sits right now,” he further said

“Then, if you get past that, there’s the overall gradual slowing as we get into probably the middle or back half of 2023.”

According to the report, even if the US manages to overcome it, there will be a general slowdown.

Meanwhile, Goldman Sachs forecast a 30% chance of the US economy tipping into recession over the next year, up from 15% earlier, following record-high inflation and a weak macroeconomic backdrop due to the Ukraine conflict.

"We now see recession risk as higher and more front-loaded," Goldman economists said in a note on Monday.

The latest forecast comes about a week after the US Federal Reserve rolled out its biggest rate hike since 1994 to stem a surge in inflation and as several other central banks also took aggressive steps to tighten monetary policy.

"We are increasingly concerned that the Fed leadership has set a high and inflation-specific bar for slowing the pace of tightening," Goldman said.

Meanwhile, economists at Morgan Stanley on Tuesday placed the odds of a U.S. recession for the next 12 months at around 35%.

"At this point, a recession is no longer just a tail risk given the Fed's predicament with inflation," Morgan Stanley said.

Goldman forecast a 48% cumulative probability of a recession over the next two years compared to its prior forecast of 35%.

"Our best guess is that a recession caused by moderate overtightening would be shallow, though we could imagine it dragging on for a little longer than it would with more policy support," economists at Goldman added.

UBS also said a recession would be shallow if it does happen, but it does not expect one in the United States or globally in 2022 or 2023.

Goldman, before the Fed rate hike, had argued that there was a "feasible though difficult" way to rebalance the labor market and bring down inflation without a recession.

Elon Musk earlier this month told Tesla Inc executives he had a "super bad feeling" about the economy and that the electric-car maker needed to cut staff and pause hiring.

(with inputs from Reuters)

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