As the world confronts an extremely complex set of challenges, analysts at Citi have developed three scenarios to predict possible outcomes. Currently, Citi’s baseline scenario has a 40% probability of being resilient, with a 25% probability for both resilient and recessionary.
Robust, resilient, recession
“The RESILIENT scenario assumes that Fed policy tightening will limit growth in the US and global economy this year. This will be offset to some extent by growth generated by low inventories and a recovery in production. In this scenario, strong corporate profits are shifted to ‘permanent demand’ sectors.”
“The ROBUST scenario assumes that the risks in European markets are greater than in the US and that the conflict in Ukraine and Russian economic sanctions do not escalate any further. A compromise between Ukraine, Russia and NATO would lower commodity prices and could reduce the Fed’s urgency to tighten policy.”
“In the RECESSION scenario, the Fed would tighten too quickly for supply growth to meet slowing demand, leading to a 2023 recession with a sharp fall in US stock prices. The projected path for 2-year US Treasuries – coupled with expectations of reduced Fed lending – points to a growing recession risk in 2023.”
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