Jan Hatzius, chief economist at Goldman Sachs, said there is a “very reasonable” path for the US economy to avoid a recession. Despite the Fed’s tightening of interest rates and geopolitical uncertainty.
The bank maintained a 35% chance that the world’s largest economy will enter recession in the next 12 months, well below the Wall Street consensus.
Steps to avoid a recession include moderating economic activity, slowing nominal wage growth, easing inflation and rebalancing the labor market.
Hatzius wrote, in a note, that the shift to growth, below the general trend, was nevertheless positive, since “it has already happened and it always seems to have been”.
soft landing
According to Hatzius, the most encouraging data behind the tight path to a soft landing – a scenario where inflation falls but the economy continues to grow – has been a slowdown in nominal wage growth.
In the note, Hatzius added that Goldman’s hourly earnings measure, which removes distortions such as the collapse and recovery in the restaurant business, has slowed significantly from last year.
Another internal measure that aggregates corporate surveys of wage changes has also declined, albeit still above the 3.5% rate that Goldman considers consistent with an ongoing price inflation rate of 2%.
Another sign that a recession is not inevitable is the October wage data, the strength of which was in part the result of a series of statistical adjustments called the Births and Deaths Model, according to “Bloomberg” and viewed by “Al Arabiya.net” .
low inflation
Furthermore, several price measures show that there are reasons to expect lower inflation, Hatzius writes.
He cited supplier deliveries, prices paid for Institute of Supply Management surveys, used car auction prices, and demand for rents on new leases.
This comes when a growing number of economists believe the Federal Reserve will push the economy into recession to achieve its goal of repressing price pressures.
The likelihood of deflation over the next 12 months is 60%, up from 50% in September and double that of six months ago, according to a Bloomberg survey of economists last month.
Federal Reserve Chairman Jerome Powell previously said the US could still avoid a recession, although he admitted the window to do so has narrowed, showing how far inflation continues.
While the US may escape a recession, the eurozone and the UK will not, according to Goldman Sachs.
Hatzius estimates that the recession will likely start in the fourth quarter in the eurozone and could actually start during the third quarter in the UK.
The main difference is the real disposable income of households, which is set to decline further in Europe, “largely due to ever-increasing increases in domestic heating bills”.
