JPMorgan’s chief economist said that the bank no longer expects a recession in the United States this year, joining other forecasters who reversed their decision and once opined that a downturn was inevitable.
Earlier, JPMorgan stated that a recession was to be expected in 2023, but they have now revised their forecast of “modest, sub-par growth,” for 2024, Bloomberg reported.
Chief US economist of the bank, Michale Feroli, in his research paper published on Friday (Aug 4) said that they now expect a “healthy pace” due to certain gains in productivity.
The firm increased its current-quarter real annualised GDP growth estimate to 2.5 per cent from 0.5 per cent.
“Given this growth, we doubt the economy will quickly lose enough momentum to slip into a mild contraction as early as next quarter, as we had previously projected,” the economist wrote.
The economist pointed to the resolution of the debt ceiling impasse in Congress and the containment of a banking crisis in March as potential headwinds that have since been removed.
He also noted productivity gains, due in part to the broader implementation of artificial intelligence, and improved labour supply even as hiring has softened in recent months.
However, despite the positive signs, Feroli said that there is a potential risk still lurking.
He specifically cited the danger of Fed policy that has seen 11 interest rate hikes implemented since March 2022. Those increases have totalled 5.25 percentage points, yet inflation is still holding well above the central bank’s 2 per cent target, CNBC noted.
“While a recession is no longer our modal scenario, risk of a downturn is still very elevated. One way this risk could materialize is if the Fed is not done hiking rates,” Feroli said.
“Another way in which recession risks could materialize is if the normal lagged effects of the tightening already delivered kick in.”
Earlier this week, the Bank of America economists also reversed their estimates saying that they no longer forecast a 2024 recession for the US and increased their 2023 economic growth outlook for the country.
(With inputs from agencies)
