Insights

Worried about a US recession? Here’s what the ASX 200 banks are forecasting

A potential modest recession in the United States isn’t expected to have a large impact on Australia.
The post Worried about a US recession? Here’s what the ASX 200 banks are forecasting appeared first on The Motley Fool Australia. –

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 world’s 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%. That’s 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 country’s 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 doesn’t expect the world’s biggest economy to implode.

According to Halmarick (courtesy of The Australian Financial Review):

It’s more than likely to meet the technical definition of a recession, but that’s not the same as a collapse in the economy. People are expecting to go from boom-like conditions to a collapse, and there’s a pathway in between…

It’s not negative growth for the year, but there may be two quarters of negative growth… We’re 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 “would certainly lower expectations for economic activity,” he said, impacting Australia’s own growth outlook.

Evans added:

If business confidence gets hit hard, then people would lower their expectations for business investment, and if consumer confidence gets hit hard, then it’s all about consumer spending and house prices.

Australia and New Zealand Banking Group Ltd (ASX: ANZ) chief economist Richard Yetsenga highlighted that it’s 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 doesn’t believe that’s likely. “US consumers look to be in very good shape suggesting the downturn in consumption will only be moderate,” he said.

Should a US recession be on the cards, National Australia Bank Ltd (ASX: NAB) chief economist Alan Oster believes that’s most likely to happen “in mid-to-late 2023”.

“We would, however, downplay the idea that a recession is only when there are two successive quarters of negative GDP growth,” he added.

Oster said the US could face “recession-like” 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.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks
*Returns as of January 12th 2022

setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

Why did Morgan Stanley just slash its target for the CBA share price?
How does the Macquarie dividend stack up against the ASX big four banks?
Why GrainCorp, PointsBet, Weebit Nano, and Westpac shares are racing higher
The ANZ share price has tumbled 24% from its 2022 high. Is it time to pounce?
ASX 200 midday update: BHP and Rio Tinto rebound, Westpac rated as a buy

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here To Get Started
FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here For More Info