The global economy and outlook for 2023
World Bank forecasts 1.7% growth globally Despite the fact that in 2022 the world economy was worth more than $100…
Read moreThere are differing opinions among experts as to whether or not the US is heading into a recession this year. Many economists have warned us that a recession will hit in 2023 and drive countless Americans out of a job but there are several ways the economy could ultimately swing.
Let’s consider the possibilities.
Recession
According to Simon Rabinovitch, US economics editor, The Economist, Washington, DC, the American economy is set for a downturn, not a crisis. The coming recession looks likely to be mild. “America is heading for a recession in 2023. Over the past half-century, whenever inflation has reached an annual pace of more than 5%, it has always taken a recession to wring it out of the economy (see chart). The current episode of inflation will be no different. Only when growth truly goes negative will America be able to contain its rampant price pressures.”
Bank of America CEO Brian Moynihan recently told CNN’s Poppy Harlow that a “mild” recession is likely.
“Slowcession”
Moody’s Analytics chief economist Mark Zandi writes, “Inflation is quickly moderating, and the economy’s fundamentals are sound. With a bit of luck and some reasonably deft policymaking by the Fed, the economy should avoid an outright downturn.”
In a slowcession, economic growth “comes to a near standstill but never slips into reverse,” explains Zandi. “Unemployment would rise, but not spike.”
Zandi warns that a recession is still a “serious threat” and that the economy is “especially vulnerable to” a shock. Moody’s expects unemployment, currently at 3.7%, to rise to 4.2% by the end of 2023.
Soft landing
Goldman Sachs believes that the US economy will not go into recession but instead move towards a “soft landing” where inflation drops but growth continues.
Self-fulfilling prophecy
There is always a real possibility that business owners and consumers will worry so much about a recession that the very precautions they take bring on the recession they are worrying about.
Optimism
There are valid reasons for some optimism.
Inflation is slowing down, the jobs market is in good shape despite the major layoffs in tech companies, real wages are increasing, gas prices are way down and the Fed might be preparing to pause or slow its rate-hiking.
Zandi points out the strong fundamentals in the US economy: healthy consumer spending; profitable businesses; and a banking system that is “on about as strong financial ground as it has ever been.”
Despite interest rate hikes, the economy has kept growing and businesses have kept hiring. In December, employers added 223,000 jobs, and the unemployment rate dropped back to 3.5%, the lowest in 53 years.
“The job market data is very supportive of the idea that the economy can … slow without recession,” said Zandi, adding, “It is important not to be Pollyannish, but it is also important not to convince ourselves that a recession is inevitable. It is not.”
