“S&P Warns of Negative Growth in the US Next Year, 'Tilted by Economic Recession'”

[Asia Economy New York=Special Correspondent Joselgina] A warning has been issued that the momentum of the U.S. economy is slowing down and tipping toward a recession. It is analyzed that the growth rate will turn negative next year. However, the level of recession is expected to remain mild, similar to that of the 1969-1970 period.

According to the economic outlook report by S&P Global on the 29th (local time), the U.S. real gross domestic product (GDP) growth rate is estimated to be 1.8% this year and -0.1% next year. This is 0.3 percentage points lower than the growth forecast presented by S&P Global in September, just a few months ago.

S&P Global viewed high inflation and aggressive tightening as direct blows to economic growth in 2023. Geopolitical risks such as the prolonged Russian invasion of Ukraine and escalating tensions surrounding Taiwan were also cited as negative factors. Additionally, China’s economic slowdown is diagnosed to further worsen supply chain disruptions and inflationary pressures.

Beth Ann Bovino, Chief Economist, said, "As the likelihood of the U.S. economy avoiding a recession over the next 12 months diminishes, it is expected to enter a recession in 2023," adding, "The U.S. GDP will contract by 0.8%, showing a mild recession similar to that of 1969-1970." At that time, the recession also began amid an inflation crisis.

Signals are also emerging that the purchasing power of the private sector is being eroded as the Federal Reserve’s (Fed) aggressive tightening continues. In the New York bond market, the inversion of long- and short-term interest rates persists, with the 10-year U.S. Treasury yield, a long-term bond, falling below the 2-year and 3-month short-term yields. S&P Global diagnosed that if the 10-year to 3-month yield inversion, confirmed since the end of October, continues for two consecutive months until the end of next month, it will be a signal of recession.

Inflation is analyzed to have peaked in the third quarter of this year. However, concerns remain that the high-price trend will continue globally due to ongoing supply chain disruptions. Along with this, S&P Global forecasted that the Fed’s tightening will continue, with the terminal rate reaching 5.0-5.25% in the second quarter of next year. Although job growth is slowing mainly in interest rate-sensitive sectors such as the technology industry, it is diagnosed that this is not enough to stop the Fed’s course.

S&P Global pointed out, "Despite the economic adverse effects, the Fed will maintain a tightening stance in monetary policy until inflation eases," adding, "There is a risk of rate hikes this year and next year." The unemployment rate is projected to soar to 5.6% in the fourth quarter of next year due to the impact of the recession.