Goldman Sachs has slashed its economic forecasts for 2022 and they have indicated that the U.S Economy is at an increased risk of 35% for a recession, this is up from a 10% risk that it was at a year ago. The tensions continue to rise between Russia and Ukraine and the U.S Economy has definitely begun to suffer from its effect. How long will the War in Ukraine last? Will prices continue to increase? These are questions that Americans are anxiously asking themselves as inflation continues to rise, oil prices continue to rise, as well as the uncertainty of the U.S economy as a whole.
GOLDMAN SACHS RECESSION PREDICTION
Investment analysts at Goldmans Sachs have cut their forecast for the Economy’s 2022 growth from 2.75% to 2% to 1.75%. This is the second adjustment they’ve made for the economy’s forecast and continue to be less optimistic of the economic future. Analysts point to the fact that since the invasion of Ukraine, Crude Oil and Agriculture skyrocketed in price, and they believe the increase in the overall cost of energy will ultimately mean that Americans will have less disposable income. It’s estimated that disposable income will decrease by an average of .7%. The Goldman Sachs report states,
“Rising commodity prices will likely result in a drag on consumer spending, as households — and lower-income households in particular — are forced to spend a larger share of income on food and gas”.
This does not come as a shock. It’s safe to say that we’ve all noticed the steady price increases in our daily lives — from groceries, gas and rent. Eventually people will need to cut back on the luxuries of travel, retail and hospitality.
WILL THE FEDERAL RESERVE STEP IN?
If the cost of commodities and steep inflation isn’t concerning enough for us, we also have to watch what moves the Federal Reserve makes to combat the growing threat. Bank of America’s Ethan Harris notes that while he doesn’t think that oil prices alone are enough to create a recession, he does worry that the combination of the oil shock and strong Fed-tightening could pose a serious risk for the possibility of a recession.
WHAT YOU NEED TO KNOW
The bottomline is that since inflation has surged to a new 40- year high, the cost of crude oil and commodities has skyrocketed, and the tensions between Russia, Ukraine and the rest of the world continue to escalate — now is the time to be more frugal than ever and really take charge of your finances. Goldman has slashed the outlook for GDP growth and has warned that recession risks are mounting, therefore Americans need to be prepared for a worst case scenario.