Most of the world’s economic analysts and the most prestigious institutions consider that a recession in the United States and in a large part of the planet is imminent.
The imminence is based on the actions carried out this year by the Fed, the central bank of the United States, seconded by a large part of the world’s monetary institutions; but, additionally, they consider that if they comply with what they say they will do in the first quarter of the year, that is, raise interest rates more, there is no other way than a recession.
The debate now seems to focus on the magnitude and duration of the recession; This debate has practically prevented the so-called “Santa Rally” or “Christmas Rally” from taking place in the stock markets, since markets and investors have serious fears that the recession will be deep and lasting, that is, it will cause a great impact. in the structure of the global economy.
Hence the debate and speculation, how long will the recession last?When will it arrive and how deep will it be? are questions that everyone asks themselves.
Recession, the current model
About the recession, Bloomberg economics points out that the 12-month recession probability shot up in November in all of its models.
The deterioration in the perspective was more significant in the one that is based on the spread for the term of 3 months to 18 monthsthe favorite blueprint for Fed Chairman Jerome Powell, who now sees a 59% chance of a recession next year, up from nearly 0% months ago.
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This way, Bloomberg Economics suite of models sees strongest signal of recession from September 2023, that is, within practically 9 months. The justification of the model that anticipates the start of the US recession within 9 months has some details such as the following:
– Bloomberg Economics assesses the probability of a recession in the coming months by looking at a set of models: three yield curve models, taking as their only input the spreads between 2y/10y, 3m/10y and 3m/18m US Treasury Future Yields, respectively, as well as a model that takes 13 financial and macroeconomic indicators as inputs.
– All three yield curves inverted further in November, indicating a higher probability of a recession next year. In particular, the 3-month/18-month forward curve inverted for the first time this year, and the model based on this indicator suggests a 59% probability of recession in 12 months (versus 32% for the same reference period). in the previous period). update), which would be in November 2023.
– Inversion in the 2y/10y and 3m/10y spreads intensified in November. Consequently, these models suggest that the probability of a recession in 12 months has increased, respectively, to 66% (vs. 61% previously) and 68% (vs. 54% previously).
– A Bloomberg model of the economy, which is based on 13 indicators estimated over horizons one to 24 months ahead, continues to see a 100% probability of recession next year, unchanged from a month ago. Even so, the risk of a recession earlier, in six to eight months, has risen from the previous reading. The most definitive sign of a recession begins on the 9-month horizoncorresponding to September 2023.
– Combining the results of the model with our judgement, our final assessment puts the probability of a recession next year at 80%. This takes into account the unusual circumstances of today’s economy: strong household balance sheets, a large cost-of-living adjustment on Social Security for the older Americas, and other income-raising policies in the country. Federal and state levels of government.
There is a slight hope to avoid the recession
Bloomberg economics is of the opinion that a narrow path could be opened for the economy to avoid recession if a disorderly Covid outflow from China is combined with a warm winter to start 2023 to cool US inflation.enough for the Fed to end its rate hike campaign earlier than planned, and even early rate cuts next year.
However, he believes that the greatest probability remains that corporate profit margins will weaken and investment will fall. Companies generally cannot sustainably increase prices to protect their margins. The recession conversation has become louder, layoffs spread at corporate America.
Consumer confidence remains historically low, reflecting substantial uncertainty about inflation, policy responses, and events around the world. In this way, Poor sentiment is often a sign of a recession.
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