Economists described the report’s tone as having become “much more pessimistic” largely due to the war in Ukraine and rising international tensions. They also said central bankers had squandered their chance to avoid recession.
“It is likely that the global economy will face a recession next year as interest rates rise in response to higher inflation,” wrote Kay Daniel Neufeld, CEBR director and head of forecasting. . “Central banks have been very slow to realize the extent of the inflationary problems we warned of and as a result the interest rate hikes and monetary deceleration have been brutal. The good news is that inflation should fall fairly quickly, the bad news is that in many countries it will take a recession for that to happen.
Sunny Goldman in 2023
Perhaps a surprising recent addition to the “recession-free” side is Goldman Sachs, predicting a soft landing in 2023.
“The world’s largest economy is expected to narrowly avoid a recession as inflation wanes and unemployment rises slightly,” the firm said in a post.
The United States is far from a level of economic activity in recession, according to Goldman. GDP rose 2.6% at an annualized rate in the third quarter and added hundreds of thousands of jobs per month.
Goldman economists put the probability of a recession at 35%, while acknowledging that a Wall Street Journal survey of economists found a 63% chance of recession in an October survey, up from 50% in July.
Goldman cited growth in real personal income, increasing disposable income by 3% over the next year, one point above projected inflation.
Economists have not become more optimistic since October. The December Bloomberg poll of economists put the probability of a recession at 70%, down from 65% in November.
They expected weak growth next year at 0.3%, with a decline of 0.7% in the second quarter and stagnation for the previous and following quarters. Soaring interest rates, inflation and the end of the Fed’s fiscal stimulus were cited as factors.
A CNBC poll of Federal Reserve economists found they forecast a 61% chance of a recession next year, most likely starting in June. The start date is in line with what economists told Bloomberg. But most economists think the slowdown will be moderate.
The Fed raised rates another 50 basis points this month, the highest funds rate in 15 years. It is expected to continue to rise by at least another 75 basis points next year, further reducing economic growth.
Wage growth, a driving force
Although Goldman Sachs economists have cited wage growth as a positive sign, a USA Today article points out that economists say the increase is a key factor in pushing the United States into a recession.
It is rapid wage growth that fuels inflation, prompting the Fed to raise rates to slow the economy. Although wages fell to 5.2% in the third quarter from 5.7% earlier in the year. Even with the decline, it is above the typical average of 3.3%. Although inflation has also come down, it is still at a high level of 7.1%. And it is expected to remain high due to wage growth.
“Surging wage growth contributes to inflation because employers with high labor costs typically raise prices to maintain profits,” according to the article.
Fed Chairman Jerome Powell said at the central bank meeting this month that wages are a key factor in the rate hike.
“It’s not that we don’t want pay raises, we want big pay raises,” Powell said, according to the New York Times. “It’s just that we want them to be compatible with 2% inflation.”
Powell said the United States is suffering from a structural and stubborn labor shortage that will likely persist through 2023. While the labor shortage helps fuel inflation, it also leads Powell said he hopes the shortage will only mean a small increase in unemployment. as the economy slows next year, according to the Times.
Another member of the “no recession” team is Jeffrey Frankel, a Harvard professor and member of the Council of Economic Advisers under President Bill Clinton, who said the predicted downturn won’t be enough to call a recession.
“While next year will be difficult for the global economy, the coming crisis should probably not be called a recession, even if one considers that the criterion of two consecutive quarters is too narrow”, Frankel wrote in a column in The Guardian. “Even in times of apparent recession, positive growth in emerging and developing economies tends to outweigh negative growth in advanced economies.”
Steven A. Morelli is editor for InsuranceNewsNet. He has over 25 years of experience as a journalist and editor of newspapers and magazines. He was also vice-president of communications for an association of insurance agents. Steve can be reached at [email protected]
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