A recessionary storm could be forming off into the distance amid a host of inflationary and geopolitical concerns, warns strategists at Goldman Sachs.
“We now see the risk that the U.S. enters a recession during the next year as broadly in line with the 20-35% odds currently implied by models based on the slope of the yield curve,” said Goldman Sachs Chief Economist Jan Hatzius.
The top Wall Street strategist cut his 2022 U.S. GDP forecast to a growth of 1.75% from 2% previously. Consensus estimates are looking for a 2.7% increase.
Multiple factors have taken shape to push up U.S. recession calls across the Street.
Brent crude oil prices traded around $113 a barrel Friday as traders continued to digest the Biden administration’s ban of imports of Russian oil, liquefied natural gas and coal in response to the country’s war on Ukraine.
Prices are off their highs of nearly $139 a barrel on optimism U.S. oil majors such as Exxon and Chevron will produce more to make up for any lost Russian output. Oil prices have surged roughly 25% since Russia’s invasion of Ukraine.
Prices at U.S. gas pumps have skyrocketed above $4 a gallon on average, notes AAA. Prices have climbed north of $5 a gallon in California.
“Oil and commodity prices have risen sharply since Russia invaded Ukraine. Our commodity strategists’ near-term crude oil and agricultural commodity forecasts imply an effective 0.7% drag on real disposable income that will weigh on spending in 2022. We also expect modest drags on growth from further tightening of financial conditions, lower consumer sentiment, and slower growth in Europe, and see additional downside risks if shortages of key metals constrain U.S. production,” Hatzius explained.
Meanwhile, large Western companies from McDonald’s to American Express have suspended operations in Russia due to its war. The financial impacts of these companies taking action against Russia — and their global ramifications — could weigh on corporate earnings in the quarters ahead.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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