While the consensus may be that the U.S. is in a recession or likely to enter one in 2023, one Wall Street firm is pumping the brakes on this call for the new year.
What Happened: Recession has become a word used more and more by financial experts and company CEOs during this period of high inflation. Searches for the term recession have skyrocketed in 2022 and show no sign of slowing down.
One firm that said the likelihood of a recession in 2023 is lower than many expect is Goldman Sachs, with analysts David Mericle and Alec Phillips tackling the recession question as one of their 10 questions for 2023.
“We have argued this year that an extended period of below-potential growth can gradually rebalance supply and demand in the labor market and dampen wage and price pressures with a much more limited increase in the unemployment rate than historical relationships would suggest,” the analysts said in a Tuesday note.
The analysts said the consensus probability for a recession in 2023 is around 65% from peers. The Goldman Sachs analysts estimate there is a 35% chance of a recession in 2023.
“Part of our disagreement with consensus arises from our more optimistic view on whether a recession is necessary to tame inflation.”
It remains uncertain as to “how sticky inflation will prove to be,” Mericle and Phillips said: “and for that reason our 12-month recession probability is about double to triple the unconditional historical average.”
Related Link: Are We In A Recession? The Question That Baffles Most Economists, Here Is What the Numbers Say
Why It’s Important: The analysts see fiscal policy and monetary policy tightening as diminishing in 2023.
“We expect more resilience in underlying demand next year than consensus because our analysis indicates that policy restraint has played a very large role in slowing demand growth this year but will fade quickly next year,” the analysts said.
Other analysts see monetary policy pushing the economy into a recession in 2023, according to Goldman Sachs. The analysts said some forecasters confuse monetary policy with GDP growth.
The Last Word: Talk of a recession will continue to be a popular topic among investors and companies in 2023, and the note from Goldman Sachs provides some optimism as the start of 2023 nears.
“Our most out-of-consensus forecast for 2023 is our call that the U.S. will avoid a recession and instead continue progressing toward a soft landing.”
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