Economists Predict Whether 2023 Will See A Recession

Various polls show that economists generally expect a recession this year, although there is no consensus among leading analysts.

The economy has been throttled by inflationary pressures, labor shortages, and backlogged supply chains, contributing to negative growth in the first two quarters of last year. Central bankers at the Federal Reserve are embarking upon the most aggressive campaign to suppress rising price levels in decades as geopolitical pressures in eastern Europe and southeast Asia continue to mount.

Roughly 70% of economists surveyed by Bloomberg last month said that the United States would witness a recession this year. Respondents predicted that gross domestic product would show flat readings in the first and third quarters, as well as an annualized decline of 0.7% in the second quarter. They project year-over-year inflation, as measured by the Personal Consumption Expenditures Price Index, to approach 3% in the fourth quarter as the Federal Reserve hikes the target federal funds rate, a reality that will also produce 4.9% unemployment.

Another poll of professional economic forecasters from the National Association for Business Economics showed that most respondents say recessionary risks have surpassed 50% amid slower economic growth, higher inflation, and a lackluster labor market. “Panelists expect job growth will slow over the first three quarters of 2023 but remain positive,” Conference Board Chief Economist Dana Peterson said in a statement.

Beyond the United States, a study from the World Bank likewise predicts that contractionary monetary policy in leading developed countries heightens the risk of a global recession.

“My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies,” World Bank Group President David Malpass said in a press release. “Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”

On the other hand, economists at Goldman Sachs place the risk of a recession in the United States at a significantly lower 35%, forecasting that the nation will “stick a soft landing” as inflation decreases with only a slight impact on unemployment.

“There are strong reasons to expect positive growth in coming quarters,” Goldman Sachs Research Head Jan Hatzius said in the investment bank’s outlook. “Our economists expect real disposable income to increase to a pace of more than 3% over the next year. Even as financial conditions have tightened and are now subtracting about 2 percentage points from growth, the rise in real income is likely to be the stronger force next year.”

Positive growth could come as other major economies are rocked by problems more severe than those in the United States, as noted by a report from the Center for American Progress. Soaring energy prices in Europe driven by the Russian invasion of Ukraine and aggressive renewable power goals have led to higher price levels. The economy of China has suffered as zealous lockdown measures slow manufacturing activity and prompt some firms to start new operations abroad. Indeed, the pressures in major economies could prompt the rise of emerging markets such as India, which is projected to surpass Japan and Germany as the world’s third-largest economy sometime in the next decade.

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