Topline
Goldman Sachs on Thursday said it sees a higher probability of the U.S. facing a recession in the next 12 months, following the recent collapse of Silicon Valley Bank and concerns about its impact on the broader banking sector.
File Photo – Goldman Sachs is now forecasting a 35% chance of a U.S. recession in the next 12 … [+]
Key Facts
Goldman analysts are now forecasting a 35% chance of a U.S. recession in the next 12 months—up from their earlier prediction of 25%.
In its research note, the investment bank said its revised estimate is in response to “increased near-term uncertainty around the economic effects of the stress on small banks.”
Thursday’s move is a reversal from last month, when Goldman had lowered its forecast from 35% to 25% and said that a recession in the U.S. was unlikely due to “persistent strength in the labor market and early signs of improvement in business surveys.”
Bloomberg notes that Goldman’s new estimate is still significantly lower than the median forecast of 60% among economists surveyed by the outlet.
Key Background
The sudden collapses of the tech-focused Silicon Valley Bank and crypto-focused Signature Bank last week triggered massive turmoil in stock markets, with bank stocks hit the hardest amid raised fears of contagion in the U.S. banking sector. Concerns spilled over into Europe over fears about the health of Credit Suisse. In his annual letter, Blackrock CEO Larry Fink warned that the twin failures may simply be the first “domino[es] to drop” before a potential “cascade throughout the U.S. regional banking sector with more seizures and shutdowns coming.” In January, when the outlook on recession was slightly more optimistic, a survey conducted by the National Association of Business Economists found that economists believe that there was a 56% likelihood of a recession in the U.S. In their earnings calls in January discussing fourth quarter 2022 results, both Bank of America and JP Morgan Chase said they expect the U.S. to go through a mild recession later this year.
Tangent
On Sunday, analysts at Goldman Sachs said they no longer expect the Federal Reserve to hike interest rates later this month following the sudden collapse of Silicon Valley Bank last week. The analysts noted that the Fed will likely hold off on a rate hike at its March 22 meeting due to the “recent stress in the banking system.” The note said that there was “considerable uncertainty” beyond March, adding that it expects back-to-back 25 basis point hikes in May, June and July. Like with its recession forecast, Goldman’s no rate hike prediction for March is an outlier with most other financial institutions and traders projecting a 25 basis point increase in rates.
Further Reading
Goldman Raises US Recession Probability to 35% on Banking Stress (Bloomberg)
Goldman Expects No Fed Rate Hike In March After SVB Collapse (Forbes)
Source: https://www.forbes.com/sites/siladityaray/2023/03/16/goldman-raises-us-recession-probability-to-35-in-next-12-months/