(Boursier.com) — Goldman Sachs raised its recession probability to 30% for the US economy over the coming year, from 15% previously, amid record inflation and economic weakness fueled by the Russian invasion of Ukraine. Goldman Sachs strategists are thus beginning to change their minds about the potential for a recession in the United States. “We now consider the risk of recession to be higher and more significant,” Goldman Sachs chief economist Jan Hatzius wrote in a new note to clients. “The main reasons are that our baseline growth path is now lower and we are increasingly concerned that the Fed will feel compelled to react forcefully to high headline inflation and consumer inflation expectations if prices energy still increase, even if the activity slows down sharply”.
Hatzius has therefore raised its probability of a recession from 15 to 30%. It also lowered its GDP outlook for the rest of this year and 2023. “Without major imbalances to resolve, a recession caused by moderate overtightening would most likely be shallow, although even shallower recessions have seen the unemployment rate increase by around 2.5 percentage points on average,” Hatzius added. “An additional concern this time is that the fiscal and monetary policy response may be more limited than usual.”
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