Headwinds outside of the United States pose a challenge to growth and policymakers, the Deloitte report said.

“We’ve added a recession scenario to our forecast. But we still think a recession is less likely than some analysts would have you believe. When the economy is currently adding almost half a million jobs per month, a turnround would take time (unless, of course, a second pandemic hits the globe). For that reason, we expect any coming recession to occur at the earliest in late 2022 or 2023,” the report said.

Just because recession occurs after the tightening cycle has started does not mean that the tightening caused the recession, it noted. Recessions occur because of shocks in the economy, it emphasised, saying that recent US recessions have not, in fact, been associated directly with Fed tightening.

The Deloitte forecast includes a recession scenario albeit with a relatively low probability of 15 per cent. Rising interest rates do pose the danger of uncovering financial imbalances or systematic risks in the financial system.

Add an oil price shock on top of rising interest rates, a possible recession in Europe if Russian natural gas supplies are stopped, and the continued impact of the pandemic, and a US downturn could certainly happen. But it’s not necessary to overstate the risk, the report said.

The forecast includes a scenario (with 5 per cent probability) that a new strain of the COVID-19 virus requires another bout of social distancing and shutting down of public spaces, which would once again slow economic growth in the near term.

The Russian invasion of Ukraine is likely to make things more difficult for US exporters. Lower demand from Europe (market for 15 per cent of US exports) and a higher dollar will create some short-term challenges, Deloitte said.

Beyond the Ukraine crisis, things look more positive, even though real US exports remain substantially below the pre-pandemic level, and real imports are now higher than they were in late 2019. This may eventually translate into opportunities for the United States as global financial and economic conditions normalise.

More normal financial conditions will create more opportunities for investment outside the United States and less desire to hold dollars to avoid risk, lowering the dollar and making the United States more competitive globally, Deloitte observed.

And demand for US goods is likely to rise in the medium term as the global economy returns to recovery from the pandemic. Deloitte’s baseline forecast therefore assumes that exports will grow more quickly than imports, the Deloitte report added.

Fibre2Fashion News Desk (DS)