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Recession Consensus Mounts: "Growth Recession" Views (1/4)

US OUTLOOK/OPINION
BulletMarketsFixed IncomeForeign Exchange

Several sell-side analysts have, in the past week, revised (or affirmed) their forecasts for the U.S. economy to enter recession either this year or next.

  • The trigger for recent forecast changes has been a combination of weaker incoming survey and "hard" data, as well as an increasingly aggressive near-term Fed hiking path amid consistent upside inflation surprises.
  • We begin with analysts who expect a severe slowdown ahead, with GDP growth falling short of potential (a "growth recession") but not an outright recession - though elevated recession risks seen:
  • Barclays: "We have revised down US growth to just 2.2% and 1.1% in 2022-23, implying increased US recession risk."
  • BMO: "With interest rates likely to rise the fastest since the 1980s, we now expect the economy to stall at the turn of the year before growing just 1.0% in 2023. This is well below long-run potential and the current consensus view, both around 1.8%. In economics lingo that’s called a growth recession, which will send the jobless rate marching back above 4% next year."
  • NatWest: "While we are not calling for a recession, we think it will be very hard to reach the Fed’s goldilocks scenario of a gentle increase in the unemployment rate, positive growth, and rapid pace in rate hikes such as the ones shown in the latest SEP."
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Several sell-side analysts have, in the past week, revised (or affirmed) their forecasts for the U.S. economy to enter recession either this year or next.

  • The trigger for recent forecast changes has been a combination of weaker incoming survey and "hard" data, as well as an increasingly aggressive near-term Fed hiking path amid consistent upside inflation surprises.
  • We begin with analysts who expect a severe slowdown ahead, with GDP growth falling short of potential (a "growth recession") but not an outright recession - though elevated recession risks seen:
  • Barclays: "We have revised down US growth to just 2.2% and 1.1% in 2022-23, implying increased US recession risk."
  • BMO: "With interest rates likely to rise the fastest since the 1980s, we now expect the economy to stall at the turn of the year before growing just 1.0% in 2023. This is well below long-run potential and the current consensus view, both around 1.8%. In economics lingo that’s called a growth recession, which will send the jobless rate marching back above 4% next year."
  • NatWest: "While we are not calling for a recession, we think it will be very hard to reach the Fed’s goldilocks scenario of a gentle increase in the unemployment rate, positive growth, and rapid pace in rate hikes such as the ones shown in the latest SEP."