OLDWICK, N.J.--(BUSINESS WIRE)--With economic activity is expected to slow in 2023 and the likelihood the Federal Reserve will continue to tighten monetary policy, the probability of the U.S. economy falling into a recession over the next 12 months is rising, according to a new AM Best report.
With its Best’s Special Report, “US Economy: Recession on the Horizon for 2023?” AM Best explores how key economic drivers performed in 2022, such as consumer spending and labor and housing market trends, with expectations for 2023. Overall, according to the report, economic activity in the United States was remarkably resilient in 2022 despite a slow start, with GDP up by 3.2% in the third quarter and by 2.9% in the fourth quarter. However, most forecasters have cut their 2023 GDP projections given the ongoing impacts of tighter financial conditions, owing to the Fed’s aggressive tightening cycle, persistent higher prices, the potential for weaker corporate earnings and higher borrowing rates. Geopolitical tensions, China’s unwinding of its zero COVID-19 policy and its impacts on supply chains and global growth, as well as a slowdown in global economic activity, also could impact U.S. economic growth negatively.
“Even if economists don’t believe the United States will enter into a recession in 2023, many believe economic growth will slow,” said Ann Modica, director, credit rating criteria, research and analytics, AM Best. “In December, the Fed revised their real GDP growth forecast for 2023 to 0.5%, a downward revision from September, when the forecast was 1.2%.”
The report also notes that although inflation has declined from its mid-2022 peak, it remains well above pre-pandemic trends and the Fed’s target of 2.0%. The process of bringing inflation in line with the Fed’s target will likely take longer than initially anticipated and remain elevated in 2023 and perhaps beyond. Additionally, high inflation, recession fears and aggressive monetary tightening were among the many factors led to the equity markets having its worst year since 2008, and bonds having one of the worst years on record, particularly ones with longer-dated durations. Among the major U.S. stock indices, NASDAQ was the biggest loser, with its value down by almost 34% from the beginning of 2022. In 2023, the markets likely will continue to experience heightened volatility, particularly during the first half. One concern centers around companies missing earnings expectations as the economy slows, which might make it more difficult for companies to pass increased costs along to consumers.
To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=328443.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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