Goldman Sachs Chief Economist Jan Hatzius warns that three major economies are at risk of falling into a "less shallow" recession given the implications of crippling inflation.
"Currently, across the advanced economies, unit labor cost growth, core inflation, and the expected total increase in the policy rate are generally running at levels similar to the run-up of the typical advanced economy recession," Hatzius wrote in a new note to clients. "Higher measures of economic overheating in the U.S., U.K., and Canada than in Japan and the Euro area suggest that the next recession may be somewhat less shallow in these English-speaking G10 economies."
Hatzius noted that his team sees the risk that "the economy enters a recession in the next year at 30% in the U.S., 40% in the Euro area, and 45% in the UK," adding that the annual probability of entering a recession in the U.S. has averaged 12% since the 1990s.
Markets continue to be on recession watch for the U.S., which is the world's largest economy.
The Atlanta Fed GDPNow model is now predicting a 2.1% decline in Q2 U.S. economic output, which would meet the unofficial threshold for a recession when matched with the 1.6% decline in Q1. The official read on second quarter GDP is due July 28.
Investors have moved swiftly to price in rising recession risk.
The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are all having their worst starts to a year in several decades.
Growth stocks such as Amazon, Tesla, and Roblox are all down more than 30% so far in 2022.
"It's a weird time," Baird strategist Michael Antonelli on Yahoo Finance Live on Tuesday (video above). "It's OK to acknowledge that stocks stink right now and there are no road signs that make a lot of sense."