Recession warning: this year more likely than not, according to Nomura

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According to economists at Nomura Holdings Inc., the US economy will likely fall into a mild recession by the end of 2022 as the Federal Reserve raises rates to keep prices under control.

Nomura warns that financial conditions will tighten further, consumer confidence is deteriorating, distortions in energy and food supply have worsened and global growth prospects have deteriorated.

“With growth momentum rapidly slowing and a Fed determined to restore price stability, we believe a mild recession beginning in the fourth quarter of 2022 is now more likely than not,” the Nomura economists wrote on Monday. Aichi Amemiya and Robert Dent in a note.

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Excess savings and consumer balance sheets will help dampen the speed of economic contraction, they said, but noted that monetary and fiscal policy will be constrained by high inflation.

Nomura lowered its real GDP forecast for this year to 1.8%, from 2.5% earlier, while the projection for next year is expected to fall by 1%, from 1.3% growth earlier. .

The analysis comes as Treasury Secretary Janet Yellen said on Sunday that “unacceptably high” prices are likely to remain with consumers through 2022 and that she expects the US economy to slow.

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Separately, Cleveland Federal Reserve Chair Loretta Mester said on Sunday that the risk of a recession in the U.S. economy was growing and that it would take several years to return to the 2% inflation target. of the central bank.

“With monthly inflation through 2022 likely to remain elevated, we believe the Fed’s response to the slowdown will initially be muted,” Nomura analysts wrote in their note.

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They expect ongoing rate hikes to continue into 2023, but with a slightly lower terminal rate of 3.50-3.75% reached in February, compared to the previous forecast of 3.75-4. .00% in March.


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