According to experts at investment banking giant Goldman Sachs, the US economy is at greater risk of sliding into recession next year due to higher oil prices and the specter of an ongoing Russian invasion of Ukraine.
Bank analysts put the US recession risk at 35%, down from a 10% risk a year ago.
“While our baseline forecast is that further service sector reopening and spending from excess savings will keep real GDP growth positive in the coming quarters, uncertainty about the outlook is higher than normal,” Goldman analysts wrote in her report.
Analysts predicted that unemployment would remain relatively low at 3.5% and the economy “would continue to post healthy job growth in 2022 despite fairly weak GDP growth on strong labor demand.”
Goldman analysts lowered their forecast for GDP growth. Instead of 1% GDP growth in the first quarter of the fiscal year 2022, experts are now expecting 0.5% growth. Previous estimates had forecast growth of 2.5% in the second and third quarters, but that has now been downgraded to 1.5% and 2.5%, respectively.
A small sign of optimism are the forecasts for the fourth quarter. Previous estimates called for GDP growth of 2%, although the revised forecast calls for 2.5%.
Overall, however, GDP growth is expected to reach 1.75% this fiscal year – down from the previous estimate of 2%.
The US economy is being impacted by the ongoing conflict in Ukraine, particularly in relation to higher commodity prices.
Crude oil and agriculture will become more expensive. Goldman analysts predict a barrel of Brent crude will hit $135 a barrel within six months before falling to $115 a barrel in early 2023.
Analysts believe rising energy costs will mean less disposable income for Americans, who would otherwise be pumping that money into the economy.
“Rising commodity prices are likely to weigh on consumer spending as households — and particularly low-income households — are forced to spend a larger portion of their income on groceries and gas,” Goldman analysts said in their report.
According to Goldman analysts, Europe is at higher risk of recession. The investment bank cut the continent’s GDP growth forecast to 2.5% from 3.9%. The European Union, unlike the United States, is heavily dependent on energy exports from Russia.
The EU and US have imposed sanctions on large parts of Russia’s banking and financial sectors, although they have avoided harsh penalties on the country’s energy industry.
The report follows new data from the Labor Department that showed inflation rose last month at its fastest rate in four decades.
The consumer price index, a closely tracked measure of inflation that details the cost of goods and services, rose 7.9% for the 12-month period ended February — the fastest rate of inflation since 1982.
Treasury Secretary Janet Yellen warned Thursday that Americans should brace themselves for at least another year of “very uncomfortably high” levels of inflation.
https://nypost.com/2022/03/11/us-faces-35-risk-of-recession-goldman-sachs/ 35% recession risk in the US: Goldman Sachs