Bloomberg reported on Tuesday (20) that the US economy has a 70% chance of falling into a recession next year after the Federal Reserve (Fed) aggressively raised interest rates, both demand and forecast inflation rates have been lowered.
Bloomberg’s latest monthly poll of economists shows that the probability of a US economic recession next year has more than doubled from 65% in November to six months ago. The survey period was December 12-16 and 38 economists were interviewed.
According to the survey results, economists’ median forecast shows that the average growth rate of US gross domestic product (GDP) will be only 0.3% next year, of which GDP will decrease at an annual rate of 0, 7% in the second quarter, and it’ll be flat in the first and third quarters. Consumer spending accounts for about two-thirds of GDP, and economists expect modest growth in the middle of next year.
Bill Adams, chief economist at Comerica Bank, said the US economy was facing significant headwinds due to rising interest rates, high inflation, an end to fiscal stimulus and weak export markets abroad. Companies have become more cautious about inventory building and hiring, potentially delaying construction and other capital spending plans as credit costs rise and orders decline.
Growth in the Fed’s preferred inflation gauge, the personal consumption spending (PCE) price index and the main PCE index excluding sources and food, slowed in what was seen as a sign of a cooling inflation, but it was well above the Fed’s 2% target.
And that explains why Fed Chair Powell hinted last week that monetary policy will tighten further early next year after the Fed raised interest rates to a new high since 2007. year.
The Bloomberg report pointed out that the main reason the Fed can keep interest rates high for a longer period of time is the flexibility of the labor market. But as the economy weakens, the job market weakens too. Economists expect employment to decline in the second and third quarters of next year, the unemployment rate could rise to a peak of 4.9% in the first quarter of 2024, and average hourly wages will also decline after strong growth this year. year.
Businesses are shrinking as high inflation and borrowing costs strain US household finances. Economists expect private investment, which includes equipment and construction spending, to decline more than a month ago in the first three quarters of next year, expecting an average decline of 3%.
The US manufacturing sector was particularly hard hit by falling investment, weak household spending and a global economy on the verge of recession. Economists have lowered their expectations for industrial production next year every time and now expect industrial production to fall by an average of 0.7% next year, far below growth of 0, according to a Bloomberg poll. 2% estimated in November.
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