Is it true or false that the United States will usher in the Great Depression in 2024? This is a difficult question to answer because the trend of the economy is influenced by many factors, including policy, market, environment, society, etc. However, we can use the analysis of some economists and institutions to understand the current situation and future prospects of the US economy.
Since 2022, the performance of the US economy has been volatile, and after consecutive negative growth in the first two quarters of 2022 and entering a technical recession, the US GDP growth rate in the second two quarters of 2022 has returned to positive values. At the same time, with the Fed's interest rate hike, U.S. stocks have generally fallen sharply since the end of 2021, with the largest drawdown of the Nasdaq index reaching 38%, and the current high point is down 29%, and accompanied by continued large volatility, how to view the US economy and capital markets in 2023
At present, the US economy is facing some challenges and risks, mainly in the following aspects:
- Inflationary pressures. In 2022, inflation in the United States reached its highest level in 40 years, exceeding 9%, well above the Fed's target of 2%. Inflation has led to rising prices, declining purchasing power, and shrinking wealth, affecting consumer and business confidence and spending.
- Monetary policy tightening. In order to control inflation, the Fed accelerated its tapering program in 2022 and began its rate hike cycle in March, expecting another 125 basis point rate hikes in 2023, with rates peaking at 5-5.25%. Tighter monetary policy can lead to slower or recessionary economic growth by increasing borrowing costs, discouraging investment and consumption, and triggering financial market volatility.
- Fiscal policy is uncertain. The US government launched a massive fiscal stimulus program during the pandemic, boosting public spending and household income, and supporting the economic recovery. However, this has also led to a significant increase in fiscal deficits and debt levels, increasing future debt-servicing pressures and tax burdens. In addition, the US government has disagreements and gridlocks on some major issues, such as the infrastructure bill and the debt ceiling, which has increased the uncertainty of fiscal policy.
- Changes in the external environment. The United States has some differences and frictions with other countries and regions in trade, security, climate and other aspects, which may trigger risks such as trade wars, sanctions, and conflicts, affecting US exports and imports. In addition, the global epidemic remains still under effective control, and the emergence of new variants of the virus may lead to more infections and deaths, affecting people's health and lives54.
Combined with the above factors, we can see that the US economy is not optimistic at present, and there is a certain risk of recession. However, whether the Great Depression will usher in 2024 will depend on how the United States responds to these challenges and risks, as well as other unforeseen factors. At present, different economists and institutions have certain differences in their forecasts of the US economy. Like what:
- The Peterson Institute for International Economics expects the U.S. economy to grow 1.7 percent this year and shrink 0.5 percent next year, arguing that it is increasingly challenging for the U.S. to avoid a recession.
- Goldman Sachs Research expects the U.S. economy to grow 1.8 percent this year and 0.8 percent next year, arguing that the U.S. is on track to avoid a recession.
- The International Monetary Fund expects the U.S. economy to grow 2.3 percent this year and 1.9 percent next year, arguing that the outlook for U.S. growth has deteriorated but remains strong.
Core ideas
After the second half of 2023, the inflation problem in the United States may turn into a deflationary risk. At present, the US CPI has peaked and fallen year-on-year, but the risk has not been lifted. There may be two paths for future US inflation: the expected path and the better-than-expected path. The expected path is determined by a combination of demand and expectation. The better-than-expected path refers to a recession, a rapid decline in demand, a faster decline in commodity prices and inflation expectations, leading to a sharp rise in unemployment, a wave of corporate bankruptcies, and a rapid year-on-year decline in US CPI. We believe that the trend of US inflation in 2023 is more likely to be a larger-than-expected path in the deep recession mode, and the second half of the year may face the risk of deflation. We expect the CPI to fall back to 1.2% y/y by the end of December.
In 2023, US monetary policy may shift from raising interest rates to cutting interest rates. The US interest rate hike in 2022 exceeded market expectations, but it was basically in line with our judgment in March. The Fed needs to raise interest rates to the point of prompting a recession, and until it reaches that point, the Fed should not loosen its tightening policy. In order to suppress inflation expectations, a policy overshoot may have become inevitable. Looking ahead to 2023, as interest rates rise to restrictive levels above 5%, the Fed will have to weigh inflation and recession risks more carefully. After a deep recession in the United States, the inflation reduction target was completed ahead of schedule, and the Fed needs to quickly switch to cutting interest rates to prevent more serious and unnecessary economic damage.
We expect a deep recession in the US economy in 2023, when GDP growth will be significantly negative. First, the decline in manufacturing and the slowdown in house price growth have led to a negative investment growth rate. Secondly, the decline in wage growth and the continued negative growth of household savings restrict consumption capacity, and it is expected that consumption growth may decline sharply. Third, both US exports and imports weakened, and the decline in imports was even greater, resulting in a negative year-on-year growth rate of net exports in 2023. Finally, fiscal revenues are declining, and U.S. government consumption and investment are likely to continue to shrink. We expect U.S. full-year 2023 growth of -1.5%.
In short, whether the United States will usher in the Great Depression in 2024 is true or false, there is no definitive answer, and some possible judgments can only be made based on existing data and analysis. We should pay attention to the dynamics of the US economy, as well as the policy actions of the US government and the central bank, so that we can adjust our expectations and strategies in a timely manner.