A stagnation storm can form in the distance amidst a group of Inflationary and geopolitical concernswarns the strategists at Goldman Sachs.
“We now see the risk of the US entering a recession over the next year broadly in line with the 20-35% odds currently indicated by yield curve-based models,” said Jan Hatzius, chief economist at Goldman Sachs.
Wall Street’s chief strategist cut his forecast for US gross domestic product for 2022 to 1.75% from 2% previously. Consensus estimates are looking for a 2.7% increase.
Multiple factors have crystallized to increase US recession calls across the street.
Brent crude prices traded around $113 a barrel on Friday as traders continued to digest the Biden administration’s ban on imports of Russian oil, liquefied natural gas and coal in response to the country’s war on Ukraine.
Prices are down from highs of around $139 a barrel on optimism that major US oil companies such as Exxon and Chevron will produce more to offset any loss in Russian production. Oil prices have risen about 25% since the Russian invasion of Ukraine.
Prices at gas pumps in the U.S. have soared above $4 a gallon on average, Notes AAA. Prices are up north of $5 a gallon in California.
“Oil and commodity prices have risen sharply since Russia’s invasion of Ukraine. Our commodity strategy experts for crude oil and agricultural commodities forecast near-term a 0.7% actual decline in real disposable income that will impact spending in 2022. We also expect modest drags on the economy,” he explained. Hatzius said growth is due to further tightening of financial conditions, lower consumer sentiment and slower growth in Europe, and we see additional downside risks if major metal shortages constrain US production.”
Meanwhile, large Western companies from McDonald’s to American Express have pending operations in Russia because of its war. The financial implications of these companies taking action against Russia – and their global ramifications – could affect corporate earnings in the coming quarters.