Global recession looms as cost of living crisis crushes post-Covid rebound
A global recession is looming due to rising interest rates and the cost of living crisis, leading economists to warn of a severe downturn in the post-Covid rebound.
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Posted 8/23/2023, 5:25:39 PM
telegraph.co.uk
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The U.S. economy is forecasted to be growing rapidly, which is causing concern for the Federal Reserve and those hoping for low interest rates.
A mild recession may benefit the housing market by leading to lower mortgage rates, more available supply, and potentially lower home prices.
The majority of economists polled by Reuters predict that the U.S. Federal Reserve will not raise interest rates again, and they expect the central bank to wait until at least the end of March before cutting them, as the probability of a recession within a year falls to its lowest level since September 2022.
Despite optimistic economic data and the belief that a recession has been avoided, some economists and analysts believe that a recession is still on the horizon due to factors such as the impact of interest rate hikes and lagged effects of inflation and tighter lending standards.
Recent profit reports from companies such as Amazon, Walmart, and Home Depot, along with other consumer statistics, indicate that the case for a 2023 recession is weakening, as the consumer economy shows resilience with rising real incomes, substantial savings, and continued spending in sectors like automobiles and services.
Despite the optimism from some economists and Wall Street experts, economist Oren Klachkin believes that elevated interest rates, restrictive Federal Reserve policy, and tight lending standards will lead to a mild recession in late 2023 due to decreased consumer spending and slow hiring, although he acknowledges that the definition of a recession may not be met due to some industries thriving while others struggle.
The UK and eurozone economies are at risk of recession due to a significant slowdown in private sector activity, with the UK experiencing its poorest performance since the Covid lockdown and Germany being hit particularly hard; the US is also showing signs of strain, with activity slowing to near-stagnation levels.
Recession fears return as a key business survey shows a significant contraction in the UK economy, signaling the detrimental effects of interest rate rises on businesses and heightening the risk of a renewed economic downturn.
China's unexpected economic slowdown, driven by excessive investment in the property sector and local government spending, is leading experts to question whether a collapse is imminent, although they believe a sudden collapse is unlikely due to China's controlled financial system; however, the slowdown will have implications for global growth and emerging markets, particularly if the U.S. enters a recession next year.
European Central Bank policymakers are increasingly concerned about deteriorating growth prospects and there is growing momentum for a pause in rate hikes as major economic indicators come in below expectations, suggesting a recession is now a distinct possibility.
The steep increase in public debt worldwide due to the Global Financial Crisis and the COVID-19 pandemic is likely irreversible, as countries struggle to reduce debt-to-GDP ratios due to factors such as population aging and increased public financing needs, according to economists at the International Monetary Fund and the University of California, Berkeley.
The performance of Nvidia stock has been impressive, but other retailers have struggled, leading to concerns about the economy, such as credit card delinquencies, falling home sales, weakening manufacturing, and tightening lending standards. These factors suggest that a recession may be looming.
U.S. economic growth, outpacing other countries, may pose global risks if the Federal Reserve is forced to raise interest rates higher than expected, potentially leading to financial tightening and ripple effects in emerging markets.
The global economy is expected to slow down due to persistently high inflation, higher interest rates, China's slowing growth, and financial system stresses, according to Moody's Investors Service, although there may be pockets of resilience in markets like India and Indonesia.
Surging interest rates in the UK have led to a slump in factory output, the biggest annual drop in house prices since the global financial crisis, and signals of distress in different sectors of the economy, posing a dilemma for the Bank of England as it decides whether to raise interest rates further.
The U.S. economy may achieve a soft landing, as strong labor market, cooling inflation, and consumer savings support economic health and mitigate the risk of a recession, despite the rise in interest rates.
Societe Generale's Albert Edwards warns that a recession is still looming as small firms face increasing bankruptcies due to high interest rates, which could eventually affect larger firms as well.
Fidelity International's Salman Ahmed predicts a recession due to high interest rates and the increasing costs of refinancing corporate debt that's becoming due in the next few years.
Top economist David Rosenberg predicts that the US will experience a recession within the next six months due to the aggressive interest rate hikes by the Federal Reserve and the erosion of credit quality in credit card debt.
The prospect of a prolonged economic slump in China poses a serious threat to global growth, potentially changing fundamental aspects of the global economy, affecting debt markets and supply chains, and impacting emerging markets and the United States.
Market jitters persist despite economists downplaying the chances of a recession, as global stocks and US futures remain in the red and inflation fears continue to linger.
Goldman Sachs economists have lowered their probability of a recession in the next 12 months to 15% from an earlier forecast of 20%, citing cooling inflation, a strong labor market, and the belief that the Federal Reserve is done raising interest rates.
The global economic slowdown and U.S. recession risks are causing concern among officials, with experts discussing recession forecasts and advising investors on portfolio and sector strategies.
Despite recent optimism around the U.S. economy, Deutsche Bank analysts believe that a recession is more likely than a "soft landing" as the Federal Reserve tightens monetary conditions to curb inflation.
The US economy is predicted to enter a recession by spring, leading to a 25% or more crash in the S&P 500, according to economist David Rosenberg, who warns that American consumers are nearing their spending limits and rising home prices reflect a weak housing market.
Former Goldman Sachs partner Abby Joseph Cohen believes that while a recession is not the most likely scenario, the probability of an economic downturn has been increasing in recent months due to weakening tailwinds and potential political issues.
The odds of a recession in the US have collapsed, making markets vulnerable to any signs of the economy overheating and contributing to inflationary pressures.
The US consumer is predicted to experience a decline in personal consumption in early 2024, which could lead to a potential recession and downside for stocks, as high borrowing costs and dwindling Covid-era savings impact household budgets.
The US economy is facing a looming recession, with weakness in certain sectors, but investors should not expect a significant number of interest-rate cuts next year, according to Liz Ann Sonders, the chief investment strategist at Charles Schwab. She points out that leading indicators have severely deteriorated, indicating trouble ahead, and predicts a full-blown recession as the most likely outcome. Despite this, the stock market has been defying rate increases and performing well.
There are indications that a severe economic contraction may be approaching in the US, with a significant decline in home sales and rising interest rates, similar to the 2008 financial crisis, according to Bloomberg analyst Mike McGlone.
Canada's economy is struggling and heading towards a recession, with declining incomes and high household debt, leading to growing dissatisfaction with Prime Minister Trudeau and his government.
The global financial crisis of 2008 and subsequent events such as the covid-19 pandemic and the Ukraine war have created a more complex and volatile world, with challenges including a potential debt crisis, shifting growth engines, slowing globalization, new rules for technology, and a volatile and uncertain macro environment.
The odds of the U.S. entering a recession by mid-2024 have decreased, but certain regions, such as the West and South, are still more vulnerable due to rapid economic growth, high home prices, and inflation, according to Moody's Analytics. However, a severe downturn is unlikely, and the Midwest and Northeast are less susceptible to a pullback. Overall, the chance of a recession has declined nationwide, but there is still a risk for some metro areas, such as Austin, Boise, Ogden, and Tampa.
The risk of a global recession in the next 12 to 18 months is high, with financial markets underestimating the chances of a recession in the United States, according to PIMCO executives.
Jeremy Grantham warns of a looming recession by early 2025, expresses concerns about US stock market, economy, and financial system, discourages investment in real estate and commodities, but supports climate-change stocks like Tesla.
Rising interest rates caused by the steepest monetary tightening campaign in a generation are causing financial distress for borrowers worldwide, threatening the survival of businesses and forcing individuals to consider selling assets or cut back on expenses.
Entrepreneur Jaspreet Singh warns that signs of a potential recession in America include labor shortages, inflation-driven spending, and high interest rates, with economists predicting that the country may start feeling the effects of a recession by the second quarter of 2024. Singh advises Americans to educate themselves about saving money and investing to prepare for the possible downturn.
The era of infrequent recessions may be coming to an end, as economists predict that boom-and-bust cycles will become the norm again due to growing national debts and inflationary pressures.
The housing market is facing challenges due to high mortgage rates and low home sales, leading economists to predict a mild recession in 2024.
The Federal Reserve has paused raising interest rates and projects that the US will not experience a recession until at least 2027, citing improvement in the economy and a "very smooth landing," though there are still potential risks such as surging oil prices, an auto worker strike, and the threat of a government shutdown.
Central banks around the world may have reached the peak of interest rate hikes in their effort to control inflation, as data suggests that major economies have turned a corner on price rises and core inflation is declining in the US, UK, and EU. However, central banks remain cautious and warn that rates may need to remain high for a longer duration, and that oil price rallies could lead to another spike in inflation. Overall, economists believe that the global monetary policy tightening cycle is nearing its end, with many central banks expected to cut interest rates in the coming year.
The bond market's recession indicator, known as the inverted yield curve, is likely correct in signaling a coming recession and suggests that the Federal Reserve made a major mistake in its inflation policy, according to economist Campbell Harvey. The yield curve, which has correctly predicted every recession since 1968, typically lags behind the start of a recession, with the average wait time being 13 months. Harvey believes that a recession is imminent due to the Fed's tight monetary policy and warns against further interest rate hikes.
The Federal Reserve's measure of inflation is disconnected from market conditions, increasing the likelihood of a recession, according to Duke University finance professor Campbell Harvey. If the central bank continues to raise interest rates based on this flawed inflation gauge, the severity of the economic downturn could worsen.
The forecasted U.S. recession in 2024 is expected to be shorter and less severe than previous recessions, with the economy's interest-rate sensitivity much lower due to reduced leverage and elevated savings from the postpandemic environment, leading investors to consider positioning for investment opportunities that will drive markets into 2024.