2023-10-02 17:24:33
Bloomberg: An American recession is approaching, despite avoiding a government shutdown
In the last moments, US President Joe Biden signed the spending law that was agreed upon by the Republican and Democratic parties, and was approved by both houses of Congress, so that the US government would avoid a new closure. However, this did not succeed in removing the clouds of recession, which continued to accumulate in the sky of the largest economy in the world, and which increased. Its density has increased significantly in recent weeks.
In a recent analytical report, Bloomberg indicated that hopes rose last summer for a safe decline in the economy, as the rate of price increases tended to decline, jobs remained abundant, and consumers continued their strong spending. At that time, confidence, at least in the Federal Reserve, increased the chances of eliminating inflation, without entering a recession.
However, the agency indicated that reaching an agreement to avoid a government shutdown, as was done last Saturday, could lead to immediate danger a little further down the road.
Bloomberg explained that the major strike in the auto industry, the resumption of student loan repayments, and the closure that may return after the expiration of the temporary spending agreement, could all easily lead to a reduction in GDP growth by a percentage point in the fourth quarter, which practically began today, Monday. .
Add these shocks to other forces affecting the economy, from dwindling savings in the post-pandemic period, to rising interest rates, as well as oil prices recently, and the expected impact may be enough to push the United States into contraction, before the end of this year, the agency says.
This month, millions of Americans will resume their student loan payments, after the end of the freeze period related to the Covid-19 epidemic, which lasted for three and a half years. The resumption of payments could reduce another 0.2% to 0.3% of annual growth in the fourth quarter, according to estimates by Bloomberg analysts.
The sudden rise in crude oil prices, which affects the pocketbook of every American household, is one of the few reliable indicators that deflation is coming, as oil prices have risen by about $25 from their lowest levels during the summer, to exceed $95 per barrel for Brent crude.
The sell-off in September pushed the yield on 10-year Treasury bonds to their highest level in 16 years, above 4.6%, and high borrowing costs, which have already lasted longer than expected at the beginning of the year, also pushed the markets… Stocks are clearly down. High interest rates put the housing sector’s recovery at risk and make it more difficult for companies to make investment spending decisions.
Bloomberg analysts believe that there is a possibility that crises in other economies will hinder American economic growth, at a time when the Chinese economy, the second largest economy in the world, is drowning in a debt crisis for real estate development companies, and lending in Europe is shrinking at a rapid pace, in a sign of continued… Slowing growth rates in the country.
The recent agreement in Congress kept the government open, but close to the danger zone, until November 17. If the disagreements continue, it could cause further damage to the current quarter’s GDP numbers.
Bloomberg Economics estimates that each week of lockdown consumes about 0.2 percentage points of annual GDP growth, with everything lost when restarted difficult to recover.
Moreover, the extra savings Americans have amassed in the pandemic, thanks to stimulus checks, are running out. There is a great deal of controversy about this point, but the Federal Reserve Bank of San Francisco estimated that it would disappear completely by the end of September, which ended two days ago. Bloomberg calculations show that 80% of the population currently has less cash than they did before Covid.
While this analysis represents good reasons for caution, a safe landing remains possible, but Bloomberg considered that the most likely possibility is that the combined effect of raising interest rates by the Federal Reserve, auto industry strikes, and the resumption of student loan repayments, in addition to rising oil prices, will cause… The global slowdown means that the US economy will soon enter a recession.
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