Ukraine War Puts Risk of US Recession as High as 35%

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That’s the chance the U.S. economy will go into a recession within the next year, Goldman Sachs economists said this week as they factored in the impact of the war in Ukraine.

While the Goldman economists only lowered their forecast for 2022 economic growth slightly—cutting it to 1.75% from 2%—they also see a risk of recession (a significant decline in economic activity) in the next year. The odds they give, according to their research report, is “broadly in line” with the 20% to 35% chance implied by current Treasury market yields.

One of the main reasons for the reduced growth forecast is the recent spike in the price of gasoline and the crude oil it’s made from. That, along with higher food prices, may force families to cut back on other items, shrinking overall consumer spending, a juggernaut of the economy. (Widespread sanctions against Russia—a major global supplier of petroleum and agricultural products—have sent gas prices soaring and threaten to do the same to food.)

Plus, psychological factors may play a major role, Goldman said. In fact, consumer confidence—that is, how willing people are to go out and spend money—is already waning.

The University of Michigan said Friday its Index of Consumer Sentiment, a major indicator of consumer confidence, fell for a third month, hitting a new low for any month in recent years (over a decade) as the inflationary impact of the war exacerbated concerns about already scorching prices. The latest reading was based on surveying done in late February and early March.

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Article Sources

  1. International Food Policy Research Institute. “Overcoming the Threats to Global Food Systems From Russia's Invasion of Ukraine.”

  2. University of Michigan. “Preliminary Results for March 2022.”