Economists say there is a 7-in-10 likelihood that the US economy will sink into a recession next year, slashing demand forecasts and trimming inflation projections in the wake of massive interest-rate hikes by the Federal Reserve.
The probability of a downturn in 2023 climbed from 65% odds in November and is more than double what it was six months ago, according to the latest Bloomberg monthly survey of economists. The poll was conducted Dec. 12-16, with 38 economists responding about the chance of a recession.
The median estimates see gross domestic product averaging a paltry 0.3% next year, including an annualized 0.7% decline in the second quarter and flat readings in the first and third quarters. Consumer spending, which accounts for about two-thirds of GDP, is projected to barely grow in the middle half of the year.
“The US economy is facing big headwinds from surging interest rates, high inflation, the end of fiscal stimulus, and weak export markets abroad,” said Bill Adams, chief economist at Comerica Bank. “Businesses have turned cautious about adding to inventories and hiring, and will likely delay construction and other capex plans with credit more expensive and order books shrinking.”
Inflation as measured by the Fed’s preferred gauges — the personal consumption expenditures prices index and the index that strips out volatile food and energy components — is seen softening but still running well above the central bank’s 2% goal.