The Swiss Re Institute has released its latest economic outlook for the United States, suggesting that while economic strength persisted in the third quarter, the nation is likely to avoid a recession this year.
The Swiss Re Institute has revised up its GDP growth forecasts for 2023 and 2024 by 0.6 and 0.4 percentage points, respectively.
However, it anticipates a significant growth slowdown in 2024, with an estimated 0.9% real GDP growth for that year.
Headline Consumer Price Index (CPI) inflation is projected to average 4.0% in 2023 and 2.5% in 2024. The report also predicts that the Federal Reserve will cut interest rates by an expected 100 basis points to 4.375% by the end of 2024.
The 10-year Treasury yield is expected to be 3.9% by the end of 2023 and 3.5% by the end of 2024.
The report notes that core inflation has been making progress, and it expects a slowing economy to lower CPI inflation to 2.5% in 2024, down from 2.8% in the previous baseline.
The deceleration in core CPI is attributed to factors like falling used car prices and a moderation in the core services basket.
While the job market is softening, it is doing so in an orderly manner. The August 2023 jobs report showed a solid increase in payrolls, but the three-month moving average fell to its slowest pace since January 2021.
The unemployment rate rose to 3.8%, primarily due to an increase in labor supply, which could put downward pressure on wage growth.
The Swiss Re Institute doesn’t foresee a recession in 2023 but anticipates a significant growth slowdown in 2024, citing potential factors such as an autoworkers strike, a government shutdown, and the restart of student loan payments.
Consumer spending remains resilient, and the latest business surveys show an improvement in sentiment, with the ISM services index reaching its strongest level since February.
The Swiss Re Institute’s report suggests that while the U.S. economy is expected to avoid a recession in 2023, there may be a significant growth slowdown in 2024. Challenges in the labour market and potential economic risks underscore the need for cautious monitoring as the year progresses.
