Economist sees 40 per cent US Recession Chance

“Where we stand now is with a heightened concern about the US economy,” Bruce Kasman, the US investment bank’s chief global economist, told reporters in Singapore on Wednesday.

He said he has not yet revised any forecasts, but put a roughly 40 per cent recession risk into the outlook – up from about a 30 per cent chance he had reckoned on at the start of the year. J.P. Morgan’s current forecast is for 2 per cent US GDP growth this year.

US stocks have suffered their sharpest selloff in months over recent days as investors have grown nervous that President Donald Trump will slow the economy with import duties.

Ninety-five percent of economists polled by Reuters last week across Canada, Mexico and the US said recession risks in their economies had increased as a result of Trump’s tariffs.

Economists at Goldman Sachs and Morgan Stanley last week downgraded their US GDP growth forecasts and now see growth at 1.7 per cent and 1.5 per cent this year, respectively.

“If we would continue down this road of what would be more disruptive, business-unfriendly policies, I think the risks on that recession front would go up,” Kasman said.

He also said that discomfort around the administration’s style could shake investor faith in US assets if it challenged trust, built over many years, in US markets and institutions.

“The US seems to have established itself as a place where people can be comfortable about rule of law … comfortable about the integrity of information flow, and they can be comfortable that the government isn’t going to be, in unexpected ways, getting involved in the rules of the game,” he said.

The administration’s cutbacks to government agencies, changes to the US role in the world, and decisions such as a move last week to disband advisory committees assisting with data collection, may undermine that, Kasman said.

“All of those things are part of the uncertainties that have moved into US policy, and that part of the risk in the outlook this year I don’t think has been appreciated,” he said.

“The term which has been in place for a very long time is that we have ‘exorbitant privilege’. That we end up paying a much lower cost for financing our deficits and debt, we have much greater capital flows and attractiveness of the dollar and assets, because of these things,” he said.

“The risk that that stuff starts to come under pressure and becomes a structural issue in the markets is not something I would, by any means, underplay.”

Source: Reuters