The probability of the world economy succumbing to a recession is nearing 50% as central banks tighten monetary policy and demand for goods weakens, according to economists at Citigroup Inc.
Supply shocks continue to push up inflation and drive down growth, while central banks are now hiking interest rates vigorously and consumer demand for goods is softening, the economists led by Nathan Sheets said in a report on Wednesday.
“The experience of history indicates that disinflation often carries meaningful costs for growth and we see the aggregate probability of recession as now approaching 50%,” the economists wrote. “Central banks may yet engineer the soft -- or “softish” -- landings embody in their forecasts (and in ours), but this will require supply shocks to ebb and demand to remain resilient.”
Citigroup now sees the world economy growing 3% this year and 2.8% in 2023. Its economists said if a recession did occur it was likely to be a “garden variety” one in which unemployment rises several percentage points and output experiences a couple of weak quarters.
“We see this as a reasonable expectation, but the wildcard -- as we have emphasized -- is how stubborn inflationary dynamics ultimately prove to be,” they said.
