Will the US Plunge Into Recession This Year?

With the global COVID pandemic and the related lockdowns dealing a serious blow to the United States’ well-being in 2020 and in 2021, the White House seems eager to further test the limits of the American economy by disrupting global trade and energy markets with its sanctions war against Russia.

As global trust in the US dollar teeters and several prominent banks collapse one after another, a growing number of people are starting to wonder if the US economy may plunge into recession in the near future.

A recession is, simply put, a period of decline in economic activity, which is, unfortunately, an inherent part of the expansion-contraction business cycle of market economics.

The exact definitions of a recession may vary from country to country: for example, in the US a recession is defined as a "significant decline in economic activity" that lasts "more than a few months," is "spread across the economy" and is "normally visible" in areas such as real gross domestic product (GDP), real income and employment, as well as in industrial production and in "wholesale-retail sales."

Meanwhile, in many other parts, including the UK, a recession is defined as a decline in GDP over two successive quarters.

While predicting a recession with 100 percent certainty may sometimes be problematic, several factors point to the likelihood of it hitting the United States as early as this year.

One of the more notable of these factors is inflation, which has been running rampant in the US over the past year when the White House decided to wage a veritable sanctions war against Russia, apparently heedless of the consequences it might have on the US economy.

As prices of groceries and fuel in the US kept growing, so was another thing – interest rates. While the US Federal Reserve sought to increase interest rates to target inflation, as some media outlets pointed out, this measure also resulted in an increase of the cost of borrowing, which in turn discouraged companies from trying to raise money that way to expand and negatively affected the consumer spending as well.

The collapse of several prominent US banks in the past months – specifically, the Silicon Valley Bank, the Signature Bank and the First Republic Bank – also does little to instill confidence in the American economy.

Estimates of the likelihood of a recession in the US in the near future vary, depending on whom you ask.

The Conference Table, a business membership and research organization founded over a century ago, suggests that there is a 99 percent chance of a recession occurring in the US within the next 12 months, basing this forecast on their own probability model.

Meanwhile, Goldman Sachs Chief Economist Jan Hatzius announced back in November that there is a 35 percent chance of a recession in 2023.

It should be noted, however, that Hatziuis’ opinion at the time was somewhat contrarian, with many more economists back then suggesting a probability of recession in the US in 2023 of around 65 percent.