US likely to avoid recession in 2023: Swiss Re

The era of ‘easy’ disinflation appears to be over. While core CPI inflation continues to decelerate, headline CPI inflation increased to 3.7 per cent YoY in August, compared to 3.2 per cent in July, mainly due to a 5.6 per cent rise in energy prices. The Federal Reserve is expected to cut interest rates by 100 basis points to 4.375 per cent by the end of 2024. Average CPI inflation is projected at 4 per cent for 2023 and 2.5 per cent for 2024, as per Swiss Re.

Despite encouraging signs of moderation in recent inflation and labour market data, Swiss Re does not foresee imminent rate cuts. They predict just 100 basis points of interest rate cuts by the Federal Open Market Committee (FOMC) next year.

The labour market is experiencing a gradual softening. The August 2023 jobs report showed an addition of 187,000 jobs, but a slower three-month moving average of 150,000. Wage growth also declined to 4.2 per cent YoY in August. Meanwhile, consumer spending remains robust, reflected by a sharp 0.6 per cent increase in real consumer spending in July, despite a decline in savings rates to 3.5 per cent. Furthermore, the ISM manufacturing index increased by 1.2 points to 47.6 but still remains in contraction.

Swiss Re Institute suggests downside risks to economic activity have increased recently and anticipates a significant growth slowdown in 2024. The 10-year US Treasury yield is expected to lower to 3.9 per cent by the end of 2023 and 3.5 per cent by the end of 2024. Despite a more positive near-term outlook, Swiss Re expects a recessionary environment due to five consecutive quarters of below-potential GDP growth.

ALCHEMPro News Desk (DP)