US economic outlook

Is the US economy headed for a recession?


Despite being one of the first countries to recover from the effects of the covid-19 pandemic, the US economy is rapidly losing its upward momentum. EIU’s latest report explores three major risks to the country’s economic outlook.

EIU’s core forecast is that economic growth in the US will slow sharply over the course of 2022 and 2023, owing to stubbornly high inflation, rising interest rates and stalling growth elsewhere. We expect consumer demand to be resilient enough to avoid an outright recession, however, this does not mean one is completely off the cards.

Report highlights:

  • We predict price pressures to wane in the second half of the year as energy prices stabilise and supply chain constraints begin to ease. However, if inflation were to jump later in 2022, after rising interest rates and falling real wages, an outright contraction in consumer spending could occur.
  • We expect the Fed to raise interest rates by a total of 300 basis points. A surge in consumer spending in the summer, coupled with still-high inflation, could potentially push the Fed to tighten more aggressively than we currently expect, which would likely be too much for households to bear.
  • US stock prices are expected to cool in the second half of 2022. The Fed will maintain a gradual approach to tightening, helping to prevent a severe collapse in asset prices that would exacerbate the drop in consumer spending.

“Whether or not the US economy manages to make a soft landing in 2022-23 will have major implications for the global economy. For now, we believe it is possible for the US to avoid a full-blown recession, owing to pent-up demand after two years of covid and the recent build-up in household savings. However, several triggers could send the economy into a recession, including another spike in inflation, a potential miscalculation by the Fed or a collapse in overvalued stocks.”

Cailin Birch, EIU’s global economist

The full report, ‘Is the US economy headed for a recession?’ is available to download here.

More award-winning insights on the US economic outlook can be found in EIU Viewpoint, our country analysis service. EIU Viewpoint provides unmatched forecasts, analysis and data for nearly 200 countries and six key industries, helping organisations identify prospective opportunities and potential risks.