Supervisor Elham AbolFateh
Editor in Chief Mohamed Wadie

Bloomberg: Probability of US Recession Reaches 100% within Year


Tue 18 Oct 2022 | 08:10 PM
U.S. recession graph
U.S. recession graph
Taarek Refaat

The United States faces a recession in the next twelve months, to a certain degree, according to the forecasts of "Bloomberg Economics" model.

In this regard, the latest models on the probability of a recession by Bloomberg economists Anna Wong and Elisa Winger, predicted a higher probability of a recession in all time frames, with the estimate of the probability of a recession occurring over the next 12 months by October 2023 at 100%, up from 65% for the same period in the previous update.

There is no doubt that these expectations will represent unwelcome news for "Biden", who has repeatedly said that the United States will avoid a recession, and that any recession will be "very slight", as part of his efforts to reassure Americans that the economy is on solid foundations under his administration. Financial conditions, persistent inflation, and expectations that a hawkish Federal Reserve will go ahead with rate hikes are increasing the risks of a recession.

Moreover, the model appears more confident about a recession than other forecasts, and a separate Bloomberg survey of 42 economists predicts that the probability of a recession over the next 12 months is now 60%, up from 50% in the previous month.

The forecast provides a sharp contrast to Biden's optimistic tone; The president has focused on strong job growth during his campaign to help Democrats retain majorities in the House and Senate in elections three weeks from now.

However, inflation, which was approaching its highest level in four decades, has weighed on Democrats' prospects in the election, with polls indicating that the economy is the most important issue for voters.

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The Bloomberg Economics model uses 13 macroeconomic and financial indicators to predict the chance of a downturn over a time horizon ranging from one month to two years.

While the chance of a recession in 12 months has reached 100% according to the model, the odds of a recession sooner also increase, as the model predicts the probability of a recession in 11 months at 73%, up from 30%, and the probability of 10 months has risen to 25% of 0%.

Bloomberg Economics also found that the deterioration in expectations was driven by a widespread deterioration in the economic and financial indicators used as inputs to the model.