US economy poised to enter mild recession as inflation has peaked – ICIS economist
NEW YORK (ICIS)–The US economy is likely to enter a relatively mild recession in 2023, the ICIS chief economist said on Wednesday.
“I think we’ll see a mild recession in the US. There is a plausible path for a soft landing and we hope the Fed pulls it off,” said Kevin Swift, senior economist for global chemicals at ICIS.
Swift spoke at a meeting of the Societe de Chimie Industrielle in New York.
The ICIS economist forecasts US GDP growth of just 0.1% in 2023, following estimated growth of 2.0% in a choppy 2022. Global GDP growth is also expected to slow to 1.7% in 2023 versus an estimated 2.7% in 2022.
Buoying the soft landing scenario is that inflation in the US and most other countries has “clearly peaked” and is starting to moderate, although still at elevated levels, said Swift.
As measured by the Consumer Price Index (CPI), the ICIS economist sees US inflation falling hard to an average of 4.3% in 2023 from an estimated 8.0% in 2022. Global CPI inflation is also expected to decline to 5.8% in 2023 from 8.2% in 2022.
The ICIS US Leading Business Barometer (LBB) is flattening, but signals still suggest conditions consistent with recession, he noted. In the latest reading, the ICIS US LBB ticked up 0.2% in December after nine months of decline.
HOUSING AND AUTOMOTIVE
Buffeting the US economic outlook is housing and automotive. Housing activity is unlikely to fall as much as in past recessions, while auto sales are expected to actually increase, the economist pointed out.
“Housing peaked in 2022 and is in decline with affordability eroded by high prices and borrowing costs but the downturn may be muted unlike in 2008-2009,” said Swift.
“Demographics are at play as Millennials at 30-40 years old have home ownership rates well below their Baby Boomer parents. So there is a floor to housing with the bottom likely at around 1.2m starts,” he added.
The ICIS economist projects US housing starts to decline to 1.27m from an estimated 1.56m in 2022 – down just slightly from 1.29m in pre-pandemic 2019.
In automotive, the supply chain issues around semiconductors and other components have largely been resolved. Dealer inventories were just under 26 days in December – up from the low of about 15 days in May but still 60% below pre-pandemic levels, he pointed out.
“There are economic headwinds and the cost of credit is up, but offsetting this is pent-up demand,” said Swift.
He sees US light vehicle sales rebounding to 15.2m units in 2023 from 13.8m in 2022 – still well below 17.0m in pre-pandemic 2019.
While the UK economy is clearly in recession, Europe may have “dodged a bullet” because of the record warm winter thus far and sufficient gas storage levels, said Swift.
The ICIS economist projects Euro area GDP to decline 0.2% in 2023 following 3.1% growth in 2022. Yet this compares favourably to a projected 0.6% GDP decline in the UK in 2023 after 4.1% growth in 2022.
CHINA REOPENING CHOPPY, LONG-TERM
China’s reopening after the abandonment of the zero-COVID policy will be choppy as the virus still has to work its way through the population, he noted.
The ICIS economist projects China GDP growth to rebound to 4.4% in 2023 from an estimated 3.1% in 2022.
Long term, China will be “hitting a demographic wall” within this decade as the working age population continues to decline, he noted.
“China is the most rapidly ageing economy n the world, overtaking Japan and South Korea,” said Swift.
By the 2040s, “a good GDP growth year in China will be about 1% and 2% would be a boom”, he added.
Focus article by Joseph Chang
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