Goldman Predicting U.S. Will ‘Narrowly’ Escape Recession, Even As Banks Tighten Lending

Goldman Sachs is pegging chances of the United States entering a recession in the next year at 35% and predicts interest rates will hold steady next year.

The UK and Europe are already in recession due to the hit to real incomes from surging energy bills, per the investment bank’s research report examining the macro outlook for 2023, but the downturn is expected to be mild.

In the U.S., Goldman said this cycle is different from any other — largely because the labor market is being driven by significant job openings as opposed to excessive employment. It also cites the normalization of the supply chain and rental housing, which it said is a unique source of disinflation not present in past cycles.

“The third reason is that long-term inflation expectations remain well-anchored, especially relative to the 1970s,” according to the report.

Overall, employment is on track to rise by half a point, and inflation is likely to drop from 5.1% to 3% in September, based on the core personal consumer expenditures price index, which the Federal Reserve relies upon.

The bank expects a rate rise of half a point at next month’s Fed meeting, per Construction Dive, and no cuts to the main interest rate until the second quarter of 2024. Goldman said U.S. gross national product is probably going to rise 1.9% this year, 1% next year and 1.6% the year after.

Other banks have a less rosy outlook. A Fed survey of lending officers showed the proportion of banks in the U.S. tightening terms on loans for commercial real estate and medium to large businesses was up last quarter to a rate normally seen in recessions, Yahoo Finance reports.

Matthew Luzzetti, chief U.S. economist for Deutsche Bank Securities, predicted the probability of a recession at 75%, even though growth in the final months of the year has been strong, per the publication. Luzzetti said the downturn is likely to start in the third quarter of next year, pushing the interest rate up to 5.6%.

In October, it was at 3.7%. In places like New York, rate hikes and recession angst are undermining proposed projects across asset classes, real estate players said at a late-November Bisnow event.

There are now fewer deals, more partnerships and joint ventures, and more complex capital stacks as the industry tries to wait out market volatility.