The probability of economic downturn in 2023 is very high despite the signs of easing inflation, experts warn
\nHigher interest rates will push the US economy into recession in the coming year, The Wall Street Journal reported on Sunday, citing its latest quarterly survey of economists.
\nAccording to the report, business and academic economists on average put the probability of a recession in the next 12 months at 61%. The forecast is slightly changed from 63% in October\u2019s survey.
\nThe WSJ report indicated that the Federal Reserve had initially hoped it could bring down inflation with only a slowing in economic growth rather than an outright contraction, an outcome dubbed a\u00a0\u201csoft landing.\u201d\u00a0However, three-quarters of respondents polled by the Journal said the Fed wouldn\u2019t achieve a soft landing this year.
\nThe warning comes despite a slightly more optimistic outlook on inflation. The report said that, as measured by the year-over-year change in the consumer-price index, inflation has eased from 9.1% last June to 6.5% in December. Economists expect it to fall to 3.1% by the end of this year and see it ending 2024 at 2.4%.
\n\u201cWhile recent inflation prints have shown some progress, a few persistent categories like core services are associated with the historically tight labor market, suggesting that there is still \u2018a long way to go\u2019 for the Fed,\u201d\u00a0Deutsche Bank economists told the WSJ in the survey.\u00a0\u201cThe Fed would stay on its tightening trajectory to restore the rebalance of labor market and price stability, which in our view would engineer a sharp rise in unemployment and recession,\u201d\u00a0they explained.
\nMeanwhile, chief economist at EY-Parthenon Greg Daco said that\u00a0\u201c[w]hile services activity remains robust, the housing sector is tumbling under the weight of elevated mortgage rates and manufacturing activity is stalling\u2013both signaling a broader economic downturn is likely coming.\u201d\u00a0The expert expects the combination of persistent inflation, tighter financial conditions and weaker global growth will push the US economy into a mild recession in the first half of 2023.
\nOverall, economists said that a recession can\u2019t be avoided but that they expect it to be relatively shallow and short-lived.
\nOn average, they expect gross domestic product to expand at a 0.1% annual rate in the first quarter of this year and to contract at 0.4% in the second. They see no growth for the third quarter and a 0.6% growth rate for the fourth, according to the report.<\/p>\n