Goldman Sachs clients slightly more optimistic on 2023 recession probability

© Reuters Goldman Sachs clients slightly more optimistic on 2023 recession probability

By Sam Boughedda

Goldman Sachs said on Tuesday that 57% of its clients expect a recession in the U.S. in 2023, which is slightly more optimistic than consensus expectations.

The firm held its Global Strategy Conference for clients in London on Monday, where it polled over attendees.

The consensus suggests that the average recession probability stands at 65%, according to Goldman, who said the “relative bullishness” might be because the market has bounced so far this year, and there has been recent good news on the growth-inflation mix.

“Our economists do not expect a recession in the U.S. Their recession probability stands at 35%. Part of this disagreement with consensus arises from our more optimistic view on whether a recession is necessary to tame inflation,” said Goldman Sachs analysts.

In addition, Goldman Sachs asked clients when they expect the first rate cuts, with 52% stating they expect the first cut in the first half of 2024. Meanwhile, 20% believe the Fed will cut rates this year.

“Our economists think that there are two possible rationales for cutting the funds rate in the future: 1) if declines and Fed officials decide that policy does not need to be as restrictive anymore; 2) if the economy is entering recession or threatens to do so without an easing in monetary policy,” added the analysts. “Our economists are doubtful that a goods-driven decline in inflation that they expect in 2023 would be sufficient to give the FOMC confidence that inflation is moving down in a sustained way and do not expect the U.S. to enter a recession this year. Thus, they expect the FOMC to just leave the policy rate unchanged until something goes wrong.”

Elsewhere on Tuesday, BofA analysts told investors that its fund manager survey shows “the humans are still bearish but a lot less bearish than in Q4.”

They pointed to optimism regarding China and the Fed as drivers of the less bearishness stance, with the survey results also suggesting recession concerns are fading on the China reopening.