Goldman Sachs has lowered the odds of a US recession in the next 12 months from 25 percent to 20 percent amid signs that inflation issues are now under control.
In a mid-year update, Jan Hatzius, the bank’s chief economist and head of global investment research, says the main reason for the change is that ‘recent data have reinforced our confidence that bringing inflation down to an acceptable level will not require a recession’.
Earlier this month, US annual inflation fell to 3 percent, its lowest level in two years, while month-on-month inflation stood at 0.2 percent. Both figures came in below market expectations.
The move marks the second downward revision of recession odds by Goldman in as many months. In June, the bank cut the chances of a downturn from 35 percent to 25 percent, basing the decision on subsiding risks around the US debt ceiling and banking sector.
Goldman’s outlook remains far more optimistic than the consensus view, however. A July poll of economists by The Wall Street Journal puts the average chance of recession at 54 percent, down from 61 percent in April.
Economic resilience
In the note, Hatzius also stresses that US economic activity ‘remains resilient,’ highlighting a rebound in consumer sentiment, falling unemployment and lower initial jobless claims.
‘We do expect some deceleration in the next couple of quarters, mostly because of sequentially slower real disposable personal income growth – especially when adjusted for the resumption of student debt payments in October – and a drag from reduced bank lending,’ he writes.
‘But the easing in financial conditions, the rebound in the housing market and the ongoing boom in factory building all suggest that the US economy will continue to grow, albeit at a below-trend pace.’
IR professionals have been readying playbooks in case of a deterioration in economic activity.
Speaking at the NIRI 2023 annual conference in June, when some economists were putting recession odds at 80 percent, Victoria Hyde-Dunn, vice president of IR at Informatica, said IROs needed to be prepared for a downturn, even a mild one.
‘So what does that mean? It means having a strategy in place, having a crisis communication plan in place, or refreshing [one], having your targeting list updated or refreshed and, more importantly, continuing to elevate the importance of investor relations and be a strategic adviser within the organization,’ she said.
