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London (CNN Business)Europe's reliance on energy from Russia has jacked up the odds that the region could enter a recession this year as soaring inflation pushes people to cut back spending. The United States is more insulated from the spike in oil and gas prices — but it's not immune.
What's happening: Goldman Sachs has downgraded its forecast for US economic growth in 2022. It now sees little to no growth during the first three months of the year.
Goldman's economists, led by Jan Hatzius, said the chance of a recession in the United States over the next year has risen as high as 35%.
"Rising commodity prices will likely result in a drag on consumer spending, as households — and lower-income households in particular — are forced to spend a larger share of income on food and gas," they told clients on Thursday.
Real-time data on consumer confidence from Morning Consult and Ipsos "show a clear decline in consumer confidence since Russia invaded" Ukraine, they noted.
It won't be the only source of stress. Financial conditions have also tightened, which could make it harder for businesses to access cash. Europe's woes will also hurt American companies with global supply chains and operations.
Step back: Harsh sanctions on Moscow following the invasion of Ukraine are pummeling Russia's economy. The Institute of International Finance predicts it will shrink by 15% this year — a recession twice as severe as what followed the global financial crisis.
But because Russia is a major exporter of oil and gas, as well as key agricultural products and industrial metals, the effects of its economic collapse and isolation will be experienced globally. Europe, which is highly reliant on Russia for energy, is most exposed, but the spike in energy and food prices will be felt across the Atlantic, too.
A US recession is not a done deal. Wells Fargo said Thursday that it expects a recession in Europe but not in America. In an interview on CNBC Thursday, Treasury Secretary Janet Yellen emphasized that the job market remains very strong and American households are in "good financial shape."
"Inflation is a problem, and it's one that we need to address, but I don't expect a recession in the United States," Yellen said.
But Goldman Sachs analysts aren't alone in observing that risks are climbing.
"There is the growing threat that rising inflation will overwhelm the nation's strong economic recovery, resulting in a recession," Mark Zandi, the chief economist of Moody's Analytics, wrote in a recent column for CNN Business.
This adds to pressure on the Federal Reserve as it calculates its next move. The central bank intends to start raising interest rates this month as it tries to get inflation under control. However, if it pulls back support for the economy too aggressively, it could make a recession more likely.
The European Central Bank said Thursday that it will tighten the money taps sooner than expected despite the war in Ukraine. The hawkish tone surprised investors.
"The US is likely to outperform Europe, which is likely to slide into recession, owing to the American economy's greater internal resilience and agility, though the US Federal Reserve's failure to respond to inflation in a timely manner last year — a historic policy mistake — will undermine policy flexibility," the economist Mohamed El-Erian wrote in a column published this week.
Investor insight: High inflation and slower economic growth, along with uncertainty about how much central banks can really do to intervene, won't inspire confidence in investors as the war rages on.
Wells Fargo has lowered its 2022 year-end target for the S&P 500. It still thinks the index could rise sharply from current levels. The bank acknowledged, however, that economic conditions tied to the war are likely to hit corporate earnings, which will weigh on stocks.
Premarket stocks: Risk of a US recession as high as 35%, Goldman Sachs says - CNN
London (CNN Business)Europe's reliance on energy from Russia has jacked up the odds that the region could enter a recession this year as soaring inflation pushes people to cut back spending. The United States is more insulated from the spike in oil and gas prices — but it's not immune.
What's happening: Goldman Sachs has downgraded its forecast for US economic growth in 2022. It now sees little to no growth during the first three months of the year.
Goldman's economists, led by Jan Hatzius, said the chance of a recession in the United States over the next year has risen as high as 35%.
"Rising commodity prices will likely result in a drag on consumer spending, as households — and lower-income households in particular — are forced to spend a larger share of income on food and gas," they told clients on Thursday.
Real-time data on consumer confidence from Morning Consult and Ipsos "show a clear decline in consumer confidence since Russia invaded" Ukraine, they noted.
It won't be the only source of stress. Financial conditions have also tightened, which could make it harder for businesses to access cash. Europe's woes will also hurt American companies with global supply chains and operations.
Step back: Harsh sanctions on Moscow following the invasion of Ukraine are pummeling Russia's economy. The Institute of International Finance predicts it will shrink by 15% this year — a recession twice as severe as what followed the global financial crisis.
But because Russia is a major exporter of oil and gas, as well as key agricultural products and industrial metals, the effects of its economic collapse and isolation will be experienced globally. Europe, which is highly reliant on Russia for energy, is most exposed, but the spike in energy and food prices will be felt across the Atlantic, too.
A US recession is not a done deal. Wells Fargo said Thursday that it expects a recession in Europe but not in America. In an interview on CNBC Thursday, Treasury Secretary Janet Yellen emphasized that the job market remains very strong and American households are in "good financial shape."
"Inflation is a problem, and it's one that we need to address, but I don't expect a recession in the United States," Yellen said.
But Goldman Sachs analysts aren't alone in observing that risks are climbing.
"There is the growing threat that rising inflation will overwhelm the nation's strong economic recovery, resulting in a recession," Mark Zandi, the chief economist of Moody's Analytics, wrote in a recent column for CNN Business.
This adds to pressure on the Federal Reserve as it calculates its next move. The central bank intends to start raising interest rates this month as it tries to get inflation under control. However, if it pulls back support for the economy too aggressively, it could make a recession more likely.
The European Central Bank said Thursday that it will tighten the money taps sooner than expected despite the war in Ukraine. The hawkish tone surprised investors.
"The US is likely to outperform Europe, which is likely to slide into recession, owing to the American economy's greater internal resilience and agility, though the US Federal Reserve's failure to respond to inflation in a timely manner last year — a historic policy mistake — will undermine policy flexibility," the economist Mohamed El-Erian wrote in a column published this week.
Investor insight: High inflation and slower economic growth, along with uncertainty about how much central banks can really do to intervene, won't inspire confidence in investors as the war rages on.
Wells Fargo has lowered its 2022 year-end target for the S&P 500. It still thinks the index could rise sharply from current levels. The bank acknowledged, however, that economic conditions tied to the war are likely to hit corporate earnings, which will weigh on stocks.
Premarket stocks: Risk of a US recession as high as 35%, Goldman Sachs says - CNN
