Economists consulted by the agency Bloomberg affirm that the probability that the US economy enters a recession in 2023 is 7 out of 10 (70%), cutting demand projections and inflation forecasts after the massive interest rate hikes by the Federal Reserve (Fed).
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The probability of a recession in 2023 has risen from 65% in November and is more than double that of six months ago, according to the latest monthly survey of Bloomberg among economists.
The survey was conducted from December 12 to 16, and 38 economists responded on the probability of a recession.
According to the median estimate, the Gross Domestic Product will stand at 0.3% in 2023, with an annualized decline of 0.7% in the second quarter and flat figures in the first and third. It is expected that consumer spending, which represents approximately two thirds of GDP, barely grows in the middle of the year.
“The US economy is facing strong headwinds from rising interest rates, high inflation, the end of fiscal stimulus, and weak export markets abroad.said Bill Adams, chief economist at Comerica Bank.
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“Companies have become cautious about adding inventories and hiring, and will likely delay construction and other capex plans with more expensive loans and shrinking order books.”, he added.
Inflation, As measured by the Fed’s preferred measures (the Personal Consumption Expenditures Price Index and the index that removes volatile components from food and energy) it is softening, but it is still well above the 2% target set by the central bank.
That explains why Fed Chairman Jerome Powell noted last week, after the central bank raised its benchmark interest rate to the highest level since 2007, that further adjustment is anticipated in early 2023.
Powell also made it clear that the Fed is not considering cutting rates in 2023. This year, it has raised rates by 4.25 percentage points, including four 75 basis point hikes.
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A key reason the Fed is likely to keep rates higher for an extended period is the resistance of the labor market. However, as the economy weakens, employment succumbs.
Economists expect payrolls to decline in the second and third quarters, and by the first quarter of 2024 the unemployment rate is expected to reach an average high of 4.9%.
And after stronger growth in the first half, average hourly earnings are expected to cool.
As high inflation and borrowing costs hit household finances hard, it is also expected that companies withdraw. Economists forecast for the first three quarters of 2023 a further decline in private investment, which includes spending on equipment and structures. These expenses will fall by 3% on average.
Reduced investment, weak household spending and a global economy on the verge of recession awill affect with special harshness to the country’s manufacturers.
(See: US GDP grew 3.2% in the third quarter).
the survey of Bloomberg shows that economists have revised downward their industrial production estimates for all quarters of next year. An average output decline of 0.7% is now projected in 2023, much weaker than the 0.2% increase forecast in November.
Bloomberg
