Recessions will roll from one region to another, eventually reaching the U.S. by the end of next year, according to the latest forecasts released by Citi.
The Wall Street bank says there’s a 50% chance of a global recession as it kept its 2022 global GDP forecast at 2.9% but trimmed its 2023 output forecast by 0.3 points to 2.2%.
“Our sense is that economic performance is likely to be plagued by high inflation, slowing real GDP growth, and rapidly tightening monetary policy for some time to come. Relative to the apparently more sunny view in financial markets, we remain concerned about the possibility of further storms ahead,” said a team led by Nathan Sheets, the global chief economist.
The S&P 500
has climbed 17% from its mid-June lows.
Citi says the eurozone and U.K. will enter a recession later this year, and the U.S. will confront one by the end of 2023. Key emerging markets including Brazil, Chile and Poland also will enter recession.
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“Stated bluntly, the global economy is still wrestling with the legacy of the supply shocks that have erupted over the past year. Given these challenges, we fear that the current market rebound may prove to be a disappointing false dawn,” the economists said.
Markets have rallied on the view that inflation in the U.S. has peaked, requiring fewer Federal Reserve interest rate hikes to douse inflation, but the team at Citi say they don’t know how long it will take for goods inflation to retreat from still lofty levels or how stubborn services inflation may prove to be.
The reason the Citi team do not expect a global recession is because of the resilience, so far, of the U.S. economy.
“But we also recognize that recessionary headwinds are increasing. Mounting challenges from the slowing global economy and Fed rate hikes, coupled with the observed slowing in the housing sector and consumer discretionary expenditures, could bite into labor market momentum and services spending more rapidly and intensely than we expect. Weak recent readings on consumer sentiment also highlight this risk,” they say. A U.S. recession in the first quarter of 2023 could be the critical mass to bring a broader global slowdown.