MOSCOW, August 10, Nadezhda Sarapina.The United States is increasingly at risk of sliding into recession, Western analysts warn. Amid rising unemployment and a protracted period of high rates, the likelihood of this has increased from 15 to 25%. If the Fed does not take urgent measures, not only the American economy will suffer — the wave will cover Russia as well.
Big bets
The US employment market is going through hard times. The dynamics in the non-farm payrolls sector turned out to be the weakest since the pandemic — only plus 114 thousand. Unemployment has been rising for the fourth month in a row, reaching a three-year high of 4.3% in July. The largest financial institutions fear a slowdown in the economy.
Thus, analysts at The Goldman Sachs Group, Inc. have increased the probability of a recession in 2025 from 15 to 25%. However, this risk is considered «limited». It is encouraging that there are no financial imbalances, Bloomberg points out.
Experts assure that the economy still looks «generally normal» and the Federal Reserve System (FRS) has the ability to quickly lower the rate. They predict a smooth correction: 25 basis points in September, November and December.
JPMorgan Chase & Co. and Citigroup expect 50 points in September. Goldman Sachs allows for this option only if the low July labor market indicators are maintained. The team of the group's chief economist Jan Hatzius expects an improvement in August. There seem to be a lot of vacancies.
Expected outcome
«The most likely is a two-fold reduction of the rate by 25 points, while there is still such an opportunity. The risks of recession are growing not only because of the tough economic policy, but also because of the political situation,» notes financial expert Andrei Vernikov.
A possible victory of Donald Trump in the presidential election, in his opinion, will increase economic tensions between Washington and Beijing. Chinese goods in the US will become more expensive, a new round of inflation is inevitable.
«Under such conditions, we will have to forget about affordable loans,» the analyst concludes.
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Mikhail Khachaturyan, PhD in Economics and Associate Professor of the Department of Strategic and Innovative Development at the Financial University, adds: The US has been balancing on the brink of recession for two years now. Its probability is either increasing due to the growth of the national debt and inflation rates, the reduction of production capacity and the fall in consumption, or decreasing against the background of injections into the military-industrial complex and additional money emission.
However, this does not solve the acute problems: in addition to financial obligations, this is also low labor productivity.
The expert explains: any options for reducing the national debt involve depriving the dollar of its status as a reserve currency. But the authorities will not agree to this, and the ceiling will continue to be raised. To resolve the production issue, it is necessary to move enterprises back to the country. This is difficult and time-consuming, and it is also more profitable for corporations to be based in China and open new factories there.
«As a result, the rate cut is unlikely to seriously increase economic activity and reduce unemployment,» Khachaturyan emphasizes.
The troubles have begun
World markets cannot help but react to the deterioration of the state of large economies — countries are linked by trade and financial relations, and the dollar is still the most popular means of payment and reserve currency.
The difficulties in the US were immediately felt in other countries. For example, the Japanese stock market lost more than 12%. The daily decline of the key indicator of the Tokyo Stock Exchange (TSE) Nikkei 225 was 4451.28 points — the maximum in 37 years. Taiwan's Taiex and Korea's Kospi slumped — minus 8.4% and 88%, respectively. The pan-European Stoxx index lost about three percent, the Moscow Exchange — 1.53.
Large companies with developed international connections suffered especially. In particular, a quarter of the Asian losses were accounted for by TSMC, Samsung Electronics, Toyota Motor and Mitsubishi UFJ Financial Group.
Andrey Vernikov believes that the probability of a recession in the United States is 30%.
«This would reduce the global economy by at least four to five percent, and the European one — due to its great political and economic dependence on America — by at least six to eight percent,» Khachaturyan clarifies. In China, it is only one and a half to three percent, and they will cope with this in no longer than six to nine months, he adds.
Due to the decline in overseas exports from China and India, Russia is expecting a decrease in demand for its main export goods. For example, in order to maintain OPEC+ oil tariffs, it is already necessary to reduce production, Vernikov recalls.
However, analysts emphasize that given the «isolation» of the domestic economy from Western financial markets, the decline is unlikely to exceed 1.5-2.5%.