The World Bank has predicted a global recession for 2023, and market experts currently discuss whether the United States will go into recession or can avoid it. While research by Goldman Sachs showed that 65% of respondents see a meaningful downturn in the US economy to come in the next 12 months, the investment bank’s own research sees the probability of a US recession in 2023 at only 35%.

“We think that a continued period of below-potential growth can gradually rebalance supply and demand in the labour market and dampen wage and price pressures with a much more limited increase in the unemployment rate than historical relationships would suggest,” Goldman’s chief U.S. economist David Mericle explains the more optimistic view.

The investment bank estimates that the drag on US GDP growth from the Federal Reserve’s recent aggressive policy will diminish over the course of 2023.

In a recent insight, the Goldman Sachs economist further discusses the prospects for the job market and wage growth. As per Mericle, the jobs-workers gap (total employment plus job openings, minus the size of the labour force) has fallen from a peak of 5.9 million to 4 million but needs to shrink to 2 million to be “compatible with a more sustainable rate of wage growth”. 

“By the end of 2023, we expect wage growth to slow from over 5% to about 4%,” says the U.S. economist.

In terms of fiscal policy changes with a meaningful macroeconomic impact, Mericle’s colleague Alec Phillips, chief U.S. political economist, sees two possible factors leading to it, a recession and the debt limit deadline.

“However, we don’t see a recession as the base case. Even if the economy enters recession, a countercyclical fiscal response is far from guaranteed, as divided control would make it harder for Congress to respond to a downturn, and any recession that might occur would likely be far milder than the downturns that led to substantial fiscal responses in 2008-09 and 2020-21,“ opines Phillips.

Read the full insight here.