In the spring, the major US bank Goldman Sachs assumed that the likelihood of a recession in the USA was significantly higher due to the crisis surrounding the SVB, the First Republic Bank & Co. The bank has now adjusted its outlook again.
• Goldman Sachs adjusts recession outlook
• Encouraging economic data
• References to disinflation
Higher risk of recession due to banking crisis
After turbulence in the banking sector caused a stir in March this year with the bankruptcies of the regional banks Silicon Valley Bank, Signature Bank and the First Republic Bank, experts at the major US bank Goldman Sachs still saw the risk of a recession at 35 percent within the following twelve months. The high level of uncertainty regarding deposit security, corporate financing and lending could also spill over to companies from other sectors and private households, which should significantly slow down the general economic mood, the experts at the money house wrote, according to “Bloomberg.” The dispute over the debt ceiling in the USA has also significantly increased the risk of an economic downturn.
Debt dispute settled
In June, the experts then adjusted their outlook downwards again. “The likelihood of a US recession in the coming year has declined as the risk of a disruptive debt-ceiling row has disappeared and stress in the banking sector appears to be a modest drag on the economy,” researchers at the research department wrote in an online post. This means that the risk of a recession in the next twelve months is only 25 percent.
Goldman forecast downgraded again
Now the strategists of the financial institution have again softened their forecast. The probability of a recession in the USA in the coming year has fallen to 20 percent, as the experts around chief strategist Jan Hatzius wrote. This puts the big bank among the analysts well below the average value of 54 percent that was determined in a survey by the “Wall Street Journal”.
Economic data give cause for optimism
As reasons for the more optimistic forecast, the experts cited that the latest economic data suggest that inflation can be brought down to a sufficient level even without an economic downturn. A forecast indicates that US gross domestic product rose by 2.3 percent in the second quarter, while consumer sentiment and the situation on the labor market have also brightened. In June, the unemployment rate fell to 3.6 percent and average hourly wages increased by 4.4 percent. Furthermore, 209,000 new jobs were created outside of agriculture.
disinflation expected
“Moreover, there are strong fundamentals supporting continued disinflation,” the report said. “Used car prices are falling amid higher auto production and inventories, rental inflation has a long way to go before catching the message from median asking rents, and the labor market has continued to level out with an ongoing downward trend in job openings, churn, reported labor shortages and nominal wage growth.” In addition, one assumes that future rate cuts are already priced into the market.
Last rate hike of the current cycle?
According to the experts at the major bank, the US Federal Reserve will raise the key interest rate by 25 basis points to a range between 5.25 and 5.5 percent in tomorrow’s interest rate decision. However, this is likely to have been the last interest rate hike by the currency watchdogs for the time being.
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