The probability of a recession is approaching 50%, Deutsche markets survey finds
The possibility of the U.S. plunging into a recession is hovering around the 50% mark, as indicated by a recent survey conducted by Deutsche Bank. This survey, which gathered the opinions of 400 participants from March 17-20, revealed that there is a 43% likelihood of an economic downturn within the next year.
Despite the current low unemployment rates and various economic indicators pointing towards sustained growth, the survey results highlight a growing concern among consumers and business leaders regarding the potential for a slowdown or recession. Federal Reserve Chair Jerome Powell acknowledged these apprehensions last week, emphasizing that the economy is still robust overall and has made significant progress towards its goals in recent years.
However, during the two-day policy meeting that concluded on Wednesday, Powell and his colleagues revised their GDP estimate for the year downwards to a meager 1.7% annualized gain. This would be the weakest growth rate since 2011, excluding the contraction caused by the Covid-19 pandemic in 2020. Additionally, the Fed officials raised their forecast for core inflation to 2.8%, surpassing the central bank’s 2% target, although they anticipate achieving this level by 2027.
The combination of sluggish growth and rising inflation raises concerns about the possibility of stagflation, a scenario not witnessed since the early 1980s. While most economists do not foresee a replication of that period in the current economic landscape, there is an increasing likelihood of a policy dilemma where the Fed may have to choose between stimulating growth and curbing inflation.
Market sentiments have been jittery in recent weeks, with bond expert Jeffrey Gundlach of DoubleLine Capital estimating a 50% to 60% chance of a recession. The uncertainty surrounding evolving tariff policies has heightened investor worries about a potential economic slowdown or recession. Morgan Stanley highlighted the risk of stagflation, where growth decelerates while inflation remains persistent, as the core concern.
Despite the concerns raised by various analysts and experts, Powell remains optimistic that a repeat of the past stagnation is unlikely. Barclays analysts also indicated that market-based indicators suggest only a modest economic slowdown, with a growth rate of 0.7% projected for the year, just above the recession threshold.
UCLA Anderson, a prominent forecasting center, issued its first-ever “recession watch” alert, primarily due to apprehensions over President Donald Trump’s tariff strategies. Economist Clement Bohr from the institution mentioned that while a downturn could materialize within a year or two, it is entirely avoidable if Trump scales back his tariff threats. Bohr cautioned that if the current administration’s wishes materialize, it could inadvertently usher in a severe recession, possibly accompanied by stagflation.
In conclusion, while the possibility of a recession looms on the horizon, experts and analysts are divided on the severity and timing of a potential economic downturn. The current economic landscape is characterized by a delicate balance between growth and inflation, necessitating careful policy decisions to navigate the challenges ahead.
