On July 17, 2023, Goldman Sachs’s Chief Economist Jan Hatzius made an announcement regarding the bank’s updated forecast on the likelihood of a US recession starting in the next 12 months. The bank has reduced the probability from 25% to 20%.
The primary reason for this downgrade is the recent data that has bolstered Goldman Sachs’s confidence that bringing inflation down to an acceptable level can be achieved without necessitating a recession. Hatzius specifically cited the moderation of core inflation (excluding food and energy prices) in recent months as a positive factor.
Another encouraging factor is the strength of the labor market, with unemployment currently at a near-record low. This further supports the bank’s optimism about the US economy’s ability to avoid a recession in the near term.
Despite the upgrade in outlook, Hatzius did acknowledge some potential risks to the economy. These include the possibility of a more substantial-than-expected slowdown in economic growth or a more aggressive tightening of monetary policy by the Federal Reserve.
When assessing the likelihood of a recession, Goldman Sachs takes into account several critical factors. These include the level and trajectory of inflation, the strength of the labor market, the pace of economic growth, the stance of monetary policy, and the global economic outlook.
It’s important to note that the probability of a recession is inherently uncertain and can change rapidly based on economic conditions. While Goldman Sachs’s downgrade reflects a more positive stance on the economy’s near-term prospects, it does not rule out the possibility of a recession entirely.
