A potential modest recession in the United States isn’t expected to have a large impact on Australia.
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The top economists at the S&P/ASX 200 Index (ASX: XJO) banks have delivered their outlooks on a recession in the United States.
While the US may be far from our shores, if the worldâs top economy dips into a recession, the ripple effects will almost certainly be felt here.
So, what are the ASX 200 banks forecasting?
US inflation and rates soaring
The May inflation rates out of the US, released last week, surprised most economists to the upside. While inflation had dipped slightly in April from the March figures, it headed higher again in May, reaching 8.6%. Thatâs the fastest pace of consumer price increases in 40 years.
The higher-than-expected inflation figures prompted the US Federal Reserve to hike the official interest rate by 0.75%, the biggest single rate hike since 1994.
With rates on the rise and inflation running hot, is the US heading for a recession?
According to the top economists at the ASX 200 banks, quite likely. But investors need not necessarily be overly alarmed.
A technical recession occurs when a countryâs GDP declines for two consecutive quarters.
While chief economist at Commonwealth Bank of Australia (ASX: CBA) Stephen Halmarick believes a recession in the US is likely, he doesnât expect the worldâs biggest economy to implode.
According to Halmarick (courtesy of The Australian Financial Review):
Itâs more than likely to meet the technical definition of a recession, but thatâs not the same as a collapse in the economy. People are expecting to go from boom-like conditions to a collapse, and thereâs a pathway in between…
Itâs not negative growth for the year, but there may be two quarters of negative growth… Weâre expecting a slowdown because the Fed will take monetary policy into restrictive territory.
ASX 200 banks address US recession impacts on Australia
As far as the impact of a US recession spreading to Australia, Westpac Banking Corp (ASX: WBC) chief economist Bill Evans said financial markets, the Aussie dollar, and confidence could all play a role.
Should the US enter a recession, it would likely result in a stronger Aussie dollar.
Although falling confidence âwould certainly lower expectations for economic activity,â he said, impacting Australiaâs own growth outlook.
If business confidence gets hit hard, then people would lower their expectations for business investment, and if consumer confidence gets hit hard, then itâs all about consumer spending and house prices.
Australia and New Zealand Banking Group Ltd (ASX: ANZ) chief economist Richard Yetsenga highlighted that itâs really the severity of any potential US recession investors should keep an eye on.
According to Yetsenga (quoted by the AFR):
The US economy is operating well beyond capacity and two quarters of modestly negative GDP need not be all that disruptive. A deep recession that is associated with large-scale unemployment, business bankruptcies and credit rationing would be more concerning and would directly impact Australia.
However, the ASX 200 bank economist doesnât believe thatâs likely. âUS consumers look to be in very good shape suggesting the downturn in consumption will only be moderate,â he said.
Should a US recession be on the cards, National Australia Bank Ltd (ASX: NAB) chief economist Alan Oster believes thatâs most likely to happen âin mid-to-late 2023â.
âWe would, however, downplay the idea that a recession is only when there are two successive quarters of negative GDP growth,â he added.
Oster said the US could face ârecession-likeâ conditions.
The ASX 200 bank is forecasting slower GDP growth to 1.1% over the next two years while it expects US unemployment to rise from the current 3.6% to 4.8%.
The post Worried about a US recession? Here’s what the ASX 200 banks are forecasting appeared first on The Motley Fool Australia.
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