The Diplomat
Crédito y Caución expects growth in advanced economies to slow to 2.7% in 2022 and 2.1% in 2023. In all regions, inflation is above multi-decade highs. However, while in Europe the price rise is mainly due to energy price shocks from the invasion of Ukraine, in the United States the source is more general imbalances: post-pandemic demand far outstrips supply. The fact that the US economy is running above full capacity explains the Federal Reserve’s sharp interest rate hikes.
The US Federal Reserve has been forced to act aggressively to curb inflation with the largest rate hikes since 1994. However, the latest report released by the credit insurer expects the economy to hold up, underpinned by a tight labour market and consumer resilience. Crédito y Caución forecasts a soft landing for US GDP growth at 2.6% in 2022, 1.8% in 2023 with a risk of a mild recession sometime in 2024. The credit insurer expects further hikes in benchmark rates in the second half of the year to end the year between 3.75% and 4.0%. Despite monetary tightening, inflation will remain above the Fed’s 2% target in 2022 and 2023.
US consumers are in a position of strength. The labour market is expected to gain about four million jobs in 2022 and the unemployment rate is expected to stabilise at around 3.5% in the second half of the year. Strong household and corporate balance sheets also ensure that a possible recession would be less deep than in the financial crisis. Households benefit from excess savings of $2.5 trillion, accumulated since March 2020, which provides an additional cushion. However, these savings are concentrated in higher-income households, and low- and middle-income Americans are increasing their borrowing to maintain consumption in the face of rising costs.
