Rising gas prices are putting pressure on the US economy.
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The odds of the U.S. economy sliding into recession next year are greater than 50%, Richard Kelly, head of global strategy at TD Securities, said Monday, outlining three possible ways it could be hit.
Rising gas prices coupled with an aggressive Federal Reserve and a generally slowing economy are among the tripartite risks facing the world’s largest economy today, Kelly said.
Would that increase the likelihood of a recession? “I don’t think it has any potential,” he told CNBC’s Street Signs Europe.
“The probability of a recession in the next 18 months is greater than 50%,” Kelly added.
When exactly that downturn will strike, however, is more difficult to predict.
Kelly said the economy could slide into a technical recession by the end of the second quarter of 2022 — defined as two consecutive quarters of negative growth. Analysts will closely monitor the Bureau of Economic Analysis on July 28 for early estimates on that.
Alternatively, the effects of rising gas prices following the unprovoked Russian invasion of Ukraine and the Fed’s ongoing rate hikes could both weigh on the economy by the end of the year or early 2023, he said.
And if the US manages to get through all of that, a general slowdown could take the wind out of the economy’s sails, but only midway to the end of 2023.
“You really have three chances of a recession in the US economy now,” Kelly said.
“We haven’t even hit the peak gas price slowdowns, and Fed hikes won’t happen until the end of this year. That’s where the peak in the economy is. I think that’s where the near-term risk for a recession in the US is now underway,” he continued.
“If you get past that, there’s the overall gradual slowdown as we probably get into the middle or back half of 2023.”
Investment firm Muzinich agreed Monday that an impending recession is not a matter of “if” but of “when”.
“A recession will come at some point,” Tatjana Greil-Castro, co-head of public markets, told CNBC, noting that the upcoming earnings season could be an indication of exactly when that might happen.
“Where earnings come in is for investors to identify when the recession is likely to happen.”
The comments add to a chorus of voices that have suggested the economy could be on the brink of recession.
David Roche, veteran investment strategist and president of Independent Strategy, said on Monday that the global economic outlook had shifted recently and it had now become easier to assess how different parts of the world might respond to different pressures.
“You can now make detailed forecasts for different parts of the world that are themselves very different from the simple general recession picture,” he said.
Roche said he viewed a recession as the loss of 2-3% of jobs in a given economy, suggesting a US recession may be a long way off. Data released Friday by the Bureau of Labor Statistics showed stronger-than-expected job growth, with nonfarm payrolls rising 372,000 in June, well above the projected 250,000.
However, he noted – not for the first time – that Europe is on the brink of what he calls a “war cession”, with the fallout from the war in Ukraine piling up economic pressure on the region, especially when it comes to energy and food shortages. .
“Europe could be hit by an energy crisis of its own that is causing the war cession. The recession caused by war,” he said.
It comes as Nord Stream 1, the primary pipeline supplying natural gas from Russia to Europe, will be shut down for maintenance this week, raising concerns it could be shut down indefinitely amid ongoing disputes over sanctions against Ukraine.