Investing.com – With the US economic slowdown and credit crunch caused by banking sector turmoil, the chances of the country entering a recession in the next 12 months increase..
The latest estimates from Grupo Financiero’s econometric model warn that the probability of the US entering a recession increases from the third quarter of 2023, until it reaches 96% in May 2024..
This model makes its estimates based on three variables: Curve 10Y – 3M aand (10 years minus 3 months), the yield curve 10Y – 2Y (10 years minus two years) and the differences futures short term interest rates (short term differences).
Thus, the model puts the probability of a recession for May 2024 at 79.9% using the yield curve (10Y – 3M) ; This represents an increase of 26.5% compared to the December 2022 estimate, and 4.8% compared to the previous month (April) revision..
when the yield curve is taken into account (10Y – 2Y)the probability of a recession in May next year is 32.7%, which means a decrease in the estimated probability for December of this year by 5.8% and in relation to last month’s revision, the probability decreased by 1.3%.
But the probability increases dramatically to 96.1% if a difference is observed in the near termwhich is an increase of 6.3% over the level of probability observed in April, and 50.3% against the estimate made in December 2022.
“It is important to remember that even though the model shows the probability of a recession for the 12 months before then, this does not mean that the recession will not happen until then, since on previous occasions, the model records an increased probability of a recession once it has started, as Such is the case in the case of the recession that occurred between April and November 2001, as explained by analysts Banco Biz.-
Commenting on estimates of recession in this model, experts point out that the threshold for recession to occur from a given level of probability has varied.-
They explain that “For example, during the 2001 recession, the average estimated recession probability was 56%, while in the recession that occurred between December 2007 and June 2009, the average was 21%.“.
They also added that an increased likelihood of a recession does not necessarily mean a recession.
Fears and uncertainty
Analysts note that the state of uncertainty in the US financial market continued after the emergence of new fears of deepening banking turmoil in the country, as four problems emerged in the banking business during the past month.:
- Banks add 9 weeks using the Fed’s liquidity mechanisms, especially the Liquidity Program (BTFP).
- On May 1, US authorities suspended operations of First Republic Bank, which was sold to JPMorgan (NYSE:) to protect deposits at that bank..
- There have been bouts of concern about the stability of other regional banks, namely Western Alliance, Pacific Western and First Horizon..
- Fed poll confirmed (SLOOS) Which was published on Monday, May 8 that banks have tightened standards for granting credit and realize that there is less demand for credit, which increases the risks of recession in the United States.
They concluded that “given the above, the market views a negative outlook for the US economy, which is confirmed by an upward trend in the odds of a recession in two of the three models.”“.
under these circumstances
Decreased bank deposits and reduced lending activity suggest that the Fed may not be obligated to raise interest rates any further. Not raising interest is in favor of gold.
But now gold is in severe turmoil, with important critical points and price tests.
Here is a set of analyzes that discuss the path of gold: