What are the Chances of the US Falling into a Recession? Economists Give Gloomy Answers

Caixin, March 17 (Editor: Ma Lan) The US-Iran conflict is triggering increasingly unpredictable effects, causing particular concern among some Wall Street institutions and economists about the outlook for the U.S. economy.

Moody’s Chief Economist Zandi recently warned that amid the US-Iran conflict and soaring oil and gas prices, the risk of a recession in the United States is rising sharply. His model predicts a 48.6% chance of a recession in the next 12 months.

He also added that since World War II, except for the recession triggered by the COVID-19 pandemic, every economic downturn has occurred after a spike in oil prices. Although the U.S. is now a net oil exporter and less affected by oil price fluctuations, American consumers had already begun cautious spending before the outbreak of the US-Iran conflict, indicating significant underlying economic issues.

Goldman Sachs estimates that there is a 25% probability of a recession in the U.S. within the next year, driven by factors such as a weak labor market and high oil prices.

Less Optimistic Irwin Stelzer, Director of Economic Policy Studies at the Hudson Institute, pointed out in a column that there are three ways to assess whether the U.S. economy will enter a recession: history, current data, and analysis of the actual situation.

Historically, before the four recessions in 1973-75, 1980, 1981-82, and 1990-91, real energy prices increased by an average of 17.5%. This has led to a consensus among economists that rising oil prices are often a precursor to recession.

Market forecasts also support this consensus. The Kalshi prediction platform has raised its expectation of a U.S. recession this year from 22% before the US-Iran conflict to 31%. Goldman Sachs’s recession forecast has also increased from 20% to 25% during the same period.

In terms of economic data, the U.S. saw a decline of 92,000 non-farm jobs in February, far below the expected increase of 50,000. Inflation data is also concerning: over the past period, the monthly consumer price index rose an average of 2.4%, while the Federal Reserve’s core personal consumption expenditures price index increased at an annualized rate of 3.1%, exceeding the 2% inflation target.

These two factors undoubtedly lay the groundwork for recession fears, but Stelzer believes there are other positive signs—namely, artificial intelligence. Companies investing billions in AI infrastructure are confident about the future of the U.S. economy, which offers hope that the country can avoid a recession.

The biggest current concern remains the destructive potential of the US-Iran conflict. Stelzer believes everything depends on how long the conflict lasts, but this is difficult to predict, just as no one anticipated the ongoing Russia-Ukraine conflict.

What’s more, the risk of a global spillover from a U.S. recession is increasing. The Oxford Economics Research Institute stated on Monday that surveys show about one in six global companies expect a recession this year, and the proportion of respondents holding a pessimistic outlook for the next two years has roughly doubled to around three-quarters.

Additionally, the survey indicates that before the US-Iran conflict erupted, over three-quarters of respondents believed American exceptionalism would persist, but now that figure has fallen to just over half. Fewer companies expect the U.S. to remain the fastest-growing economy among G7 nations this year.