Jan 13, 2023 - Economy

Goldman's outlook for 2023 is "foggy"

A shrugging emoji in a stock ticker

Illustration: Lazaro Gamio/Axios

After nearly three years of unprecedented economic and geopolitical shocks, experts are effectively throwing up their hands and admitting they don't know what's coming next.

The latest: The probability of a recession in 2023 is between 45% and 55%, per the authors of a report from Goldman Sachs' Investment Strategy Group released Friday morning.

  • That's right down the middle — they'll basically be right either way.
  • Still, it's the highest number since the group began making its prediction more than a decade ago; and higher than the 35% forecast from Goldman's chief economist, Jan Hatzius, which is the official view of the firm.
  • "This year our outlook is called 'caution, heavy fog,'" said Sharmin Mossavar-Rahmani of Goldman at a briefing about the 110-page report. "We're trying to give a sense of uncertainty...and we should be cautious about how we proceed."

Zoom out: Recession talk in the media and among market experts was intense last year, peaking in the summer along with the Consumer Price Index.

  • And certainly, it was a rocky year with skyrocketing inflation, war, and a big drop in stock and bond prices. But the arbiters of recession have not declared that the U.S. was ever in one last year (at least not yet).
  • The number of news stories about recession in 2022 exceeded the number tracked in 2020 when the U.S. economy was actually in a recession, the Goldman report found.

Between the lines: Under the hood, the authors were actually fairly optimistic about what all this uncertainty means for the stock and bond markets — noting that 2023 is "likely to be less tumultuous."

  • Positive signs include cooling inflation, which would mean less extreme interest rate hikes. The authors also see falling wage growth as a good sign (which may be true for the markets but less so for many workers).
  • Two consecutive down years in the S&P is "very rare historically," said Brett Nelson of Goldman who co-authored the report.

If a recession does happen, the group thinks it will be mild and that the S&P could still post gains.

  • Yes, but: Forces outside of business are making folks nervous.
  • "As we talk about geopolitics, it is an irrational environment given what China and Russia are doing from our perspective," Mossavar-Rahmani said.
  • The report highlights China's aggressive posturing around Taiwan and the lack of a face-saving off-ramp for Russia in Ukraine.
  • "There could be things we just cannot anticipate," she said.
  • Chamber of Commerce CEO Suzanne Clark struck a similar point in a speech Thursday: The greatest risks to business are coming from outside the businesses themselves. But she focused on U.S. politics. "The only risk that businesses say is rising — is getting worse — is the risk that comes from our own government."

💭 Our thought bubble: After three eventful years, it would actually be weird for anyone to express much certainty about broad macro trends.

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