US Economists Say "Probability of Recession Within One Year Rises from 49% to 63%"

[Asia Economy New York=Special Correspondent Joselgina] American economists have raised the likelihood of a recession hitting the United States within the next year to over 60%. This is the first time since July 2020, when the pandemic impact was spreading, that the probability has exceeded 50%.

The Wall Street Journal (WSJ) reported on the 16th (local time) that a survey of 66 economists showed the average response for the "probability of a recession within the next 12 months" was 63%. The survey was conducted from the 7th to the 11th of this month, while waiting for the Consumer Price Index (CPI) data after the Federal Reserve (Fed), the central bank, implemented three consecutive giant steps (0.75 percentage point interest rate hikes) by September.

This response is significantly higher than the 49% recorded in the July survey. The last time a response over 50% was recorded in the same survey was July 2020. Before the global financial crisis in December 2007, it was 38%, and just before the COVID-19 outbreak in February 2020, it was 26%.

The outlook for 2023 has also darkened. Economists have downgraded their forecast for the U.S. Gross Domestic Product (GDP) growth rate. They expect the average GDP growth rate for Q1 2023 to shrink to an annualized 0.2%, and for Q2 to decline by 0.1%. In the previous July survey, the forecasts were 0.8% for Q1 and 1% for Q2.

Additionally, 58.9% of economists believe that the Fed’s excessive rate hikes could cause unnecessary economic deterioration. This is higher than the 45.6% response in the July survey.

Professor Danil Manenkov of the University of Michigan pointed out, "A soft landing will remain a mythical outcome that never actually materializes." Aneta Markowska, Chief Economist at Jefferies, said, "The impact of rate hikes and a strong dollar is tremendous. It could reduce next year’s GDP growth by 2.5 percentage points. Considering this, it is hard to even imagine how the U.S. could avoid a recession."

However, economists believe that this recession could end relatively quickly. When asked about the expected duration of a recession by economists who see more than a 50% chance of recession next year, the average was 8 months. Since World War II, the average recession duration in the U.S. has been 10.2 months.

The unemployment rate is expected to rise from 3.7% in December this year to 4.3% in June 2023. The average forecast for the end of next year is 4.7%. WSJ reported, "Although the current labor market is suffering from a labor shortage, the Fed’s tightening measures to curb inflation suggest that the labor market will experience some pain (unemployment)."

Diane Skunk of KPMG pointed out, "The Fed is choosing the lesser of two evils: either endure a recession with rising unemployment or risk inflation becoming entrenched."

This content was produced with the assistance of AI translation services.