Even the most optimistic economists expect the U.S. economy to feel some pain in 2023, but there is also a half-glass-full theory making the rounds: Instead of the recession many fear, the economy could be headed for a “slowcession” in which growth slows but doesn’t head into negative territory.
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Among those who lean toward a slowcession is Mark Zandi, chief economist at Moody’s. In a new report, Zandi wrote that the U.S. economy “will struggle in 2023 with halting growth and higher unemployment. Recession is a serious threat.”
However, Moody’s Analytics baseline forecast, which Zandi called “the most-likely outlook,” holds that the economy will avoid a downturn and instead go into a slowcession. This happens when economic growth “comes to a near standstill but that never slips into reverse.”
For consumers, it means less likelihood of layoffs and investment losses, as well as lower inflation.
That’s a much cheerier outlook than the deep recession many economists have projected in recent months. Even Zandi concedes that “expectations are strong” that high interest rates will push the economy into recession at some point in 2023. Economists put the probability of a 2023 recession at around two-thirds. Projections of a coming recession also align with historical patterns, especially in terms of the inversion of the U.S. Treasury yield curve.
“The drag on the economy from rapid interest rate hikes, high inflation, and downturns in Europe and China make a mild recession more likely than not in the first half of 2023,” Bill Adams, chief economist for Comerica Bank, told GOBankingRates in an email statement. “The U.S. may in fact already be in a recession; the six-month increase of continued jobless claims in December matched rates typically seen only during recessions in data going back to the late 1960s.”
One reason Zandi has a slightly sunnier outlook is the expectation that the Federal Reserve will be able to rein in inflation without precipitating a recession.
“[The Fed] will be able to raise rates high enough (and) fast enough to sufficiently quell the wage and price pressures, but not so high and fast that it knocks the wind out of the economy,” Zandi wrote.
This is the scenario that has Moody’s more inclined to project a slowcession rather than a recession. Other positive trends include lower oil and gas prices and a decline in the inflationary impact of the COVID-19 pandemic.
These developments also have others hopeful that the economy will hold up better than previously thought. Bank of America CEO Brian Moynihan recently told CNN that a “mild” recession is likely.
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Meanwhile, Goldman Sachs last week said it believes the economy will avoid a recession and instead move towards a “soft landing” where inflation moderates but growth continues, CNN reported.
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This article originally appeared on GOBankingRates.com: Moody’s Mark Zandi Predicts a ‘Slowcession’ for 2023 – What Is It & What Does it Mean for Your Wallet?
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