US recession risk now higher and more front-loaded – Goldman Sachs

Economists at Goldman Sachs warned over the increasing chances of a US recession this year while downgrading their GDP growth forecasts for the economy.

Key quotes (via Bloomberg)

“Now see a 30 per cent probability of entering a recession over the next year, compared to 15 per cent previously, and a 25 per cent conditional probability of entering a recession in the second year if one is avoided in the first, they wrote in a research note on Monday (June 20). That implies a 48 per cent cumulative probability in the next two years compared to a 35 per cent estimate previously.”

"We now see recession risk as higher and more front-load.”

"The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply."

"One additional concern this time is that the fiscal and monetary policy response might be more limited than usual."

Economists maintained their second-quarter growth forecast of 2.8%, they cut their outlook from the third quarter of this year through to the first quarter of 2023, and now forecast growth of 1.75%, 0.75% and 1%, respectively, in each of those quarters.