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Recession alert: Credit Agricole predicts economic downturn — Find out when and why!


Credit Agricole predicts economic downturn

Credit Agricole economists are signaling a potential recession in the American economy, although they do not anticipate widespread layoffs. However, they predict an increase in unemployment rates. They have recently released a forecast that outlines the expected timeline and consequences of the looming economic downturn, providing insights into when and how the recession might impact various sectors of the economy.


The economic growth observed in the United States throughout 2023 has exceeded expectations, particularly when compared to the more conservative forecasts from early last year. However, the latest GDP figures suggest that this growth is beginning to slow. Despite the overall positive performance, the cooling signs in the economy hint at underlying challenges that could affect future economic stability.



The initial GDP growth rate of 1.6% year-over-year for the first quarter of 2023, which is presented on an annualized basis, hasn't raised significant concerns among economists. However, when compared to the higher growth rates of 4.9% in the third quarter and 3.4% in the fourth quarter of 2023, the decrease is noticeable and could be indicative of a shifting economic environment that may lead to further slowdowns.


Economists at Credit Agricole are maintaining an optimistic outlook for the U.S. economy through to mid-2024, projecting continued growth despite some signs of slowdown. They believe that the economy's current strength will carry it through the short term. However, they caution that changes could be on the horizon later in the year, potentially altering the economic trajectory.


The experts are projecting a recession that could start by the end of 2024 or early in 2025. They argue that while the U.S. economy has shown resilience, with robust growth especially in the first half of 2023 that has even accelerated later in the year, there is a possibility that growth will not only slow but eventually turn negative, leading to a recession as economic challenges mount.



The bank’s analysts are increasingly concerned about the latter part of 2024 and the early months of 2025. They anticipate that the recession, though delayed, will likely begin in the fourth quarter of 2024 or the first quarter of the following year. This forecast is built on the analysis of current economic indicators and trends which suggest a downturn is probable.


Credit Agricole's baseline scenario suggests a mild recession considering the healthy financial state of U.S. households, which provides some economic cushion. Nevertheless, they warn that prolonged high interest rates could increase the risks of a more severe economic downturn, as businesses and consumers may face increased financial pressures that could exacerbate the recessionary trend.


The average annual GDP growth is expected to slow down significantly by 2024, decreasing to 1.8% from 2.5% in 2023, and will further decline to just 0.4% in 2025. They forecast a slight recovery towards the end of 2025, with quarterly growth potentially reaching around 2%, indicating a slow but steady path out of the economic slowdown.



Credit Agricole highlights that the Federal Reserve's high-interest rate policy will likely have delayed but profound effects on the economy. They note that while many businesses and households have secured low rates on existing debts, allowing them to withstand the initial phase of tighter monetary policy, the full impact of these policies will be felt more intensely as more debt comes up for refinancing at higher rates in 2024 and 2025.


The U.S. job market is expected to experience a downturn over the next few quarters. However, anticipate that the impact will be more about a reduction in job vacancies rather than mass layoffs. The predicted cooling of the job market suggests a gradual increase in unemployment rates, peaking at around 4.6%, which is less severe compared to past recessions, indicating a milder economic contraction than previously experienced.


04.05.2024



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