Thursday, June 30, 2022

US recession risk now close to 50%, says Citigroup analysis

According to the latest analysis by Citigroup, the likelihood of a global economic slowdown is now close to 50% as the Federal Reserve and other central banks scramble to address inflation by raising interest rates.

Analysts at Citigroup cited a sharp rise in interest rates and signs of weak consumer demand for goods while giving the forecast update.

According to Bloomberg, Citigroup economists wrote in a note, “History experience shows that deflation often carries meaningful costs to growth and we are now seeing the overall likelihood of a recession approaching 50%.”

“Central banks may yet incorporate soft or ‘softish’ landings into their forecast (and ours), but this will require supply shocks and demand to remain resilient,” the note said.

Stocks have been volatile in recent trading as investors express doubts about the Fed’s ability to secure a “soft landing” for the economy while raising rates to tackle decades of high inflation. Last week, the Fed raised its benchmark rate by three-quarters of a percent for the first time since 1994.

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Citigroup said the slowdown, if it does happen, would be a recession of the “garden kind”. Analysts predicted a rise in the unemployment rate, which is hovering below 4% in the US.

Fed Chairman Jerome Powell has acknowledged that a recession is likely.
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“We view this as a reasonable expectation, but the wildcard – as we have emphasized – ultimately proves to be how stubborn inflationary dynamics are,” the note said.

Fed Chair Jerome Powell acknowledged that a recession was “definitely a possibility” during testimony on Capitol Hill on Wednesday.

“It is not exactly our intended outcome, but it is certainly a possibility, and clearly the events of the past few months around the world have made it more difficult for us to achieve what we want, which is 2% There is inflation and there is still a strong labor market,” Powell said.

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shopkeeper outside shop
Many banks are warning of higher recession risk.
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Citigroup is the latest in a growing list of institutions and economists who have warned about an impending recession.

Earlier this week, analysts at Goldman Sachs warned that their forecast showed the risk of a recession doubled to 30% within the next 12 months, down from their previous estimate of 15%.

Over the next two years, Goldman Sachs economists see a 48% recession risk.

grocery store
The Fed is raising interest rates to calm inflation.
Xinhua news agency via Getty Images

Analysts at Goldman said they are “increasingly concerned that the Fed will feel compelled to react forcefully to higher headline inflation and consumer inflation expectations if energy prices rise further, even as activity slows sharply.”

Analysts at Nomura said in a note on Monday that a recession this year is now “more likely.”

Nation World News Desk
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