On March 15, Goldman Sachs Group Inc. economists raised their estimates on the odds of a US recession to 35% over the next 12 months, citing increased near-term uncertainty around the economic effects of small bank stress.[0] This is despite economists surveyed by Bloomberg putting the odds of a recession at 60%.[0] JPMorgan economists noted that slower loan growth by mid-size banks could subtract a half to a full percentage-point off the level of GDP over the next year or two.[1] Goldman Sachs economists have predicted that tighter financial conditions could shave half a percentage point off US growth this year.[2]
The market may be nearing its Lehman moment yet again, Art Cashin, the director of floor operations at UBS, said as a global banking crisis unfolds.[3] A feeling of panic spread to Credit Suisse, which experienced its stock dropping by 30% in one day after a major shareholder revealed they could not offer more monetary aid because of a regulatory boundary.[4] Cashin stated that the “game is afoot” as certain investors may attempt to “agitate things as much as possible” for their own monetary benefit.[4] At its meeting on Thursday, the European Central Bank is predicted to reduce the pace of rate increases.[2]
In a client note, Goldman Sachs analysts revealed that they have lowered their 2023 GDP forecast due to a contraction in lending from small- and medium-sized banks.[5] To add to the market’s unease, First Republic Bank is exploring strategic options — including a sale, according to Bloomberg.[2] With the market on edge, the US continues to face an uphill battle against recession.
0. “Shrinking savings and rising debt leave consumers on shaky financial footing” NBC News, 18 Mar. 2023, https://www.nbcnews.com/politics/economics/shrinking-savings-rising-debt-leave-consumers-shaky-financial-footing-rcna75389
1. “A recession could come sooner on cooling bank lending” CNBC, 15 Mar. 2023, https://www.cnbc.com/2023/03/15/a-recession-could-come-sooner-on-cooling-bank-lending-.html
2. “Recession Fears Soar as Credit Suisse Woes Threaten Loan Crunch” Yahoo News, 16 Mar. 2023, https://news.yahoo.com/recession-fears-soar-credit-suisse-062207564.html
3. “The market is on the verge of a Lehman-style event as the financial world thrashes in the wake of global banki” Business Insider India, 17 Mar. 2023, https://www.businessinsider.in/stock-market/news/the-market-is-on-the-verge-of-a-lehman-style-event-as-the-financial-world-thrashes-in-the-wake-of-global-banking-turmoil-veteran-trader-art-cashin-says/articleshow/98741749.cms
4. “The market is on the verge of Lehman-style event amid banking turmoil” Markets Insider, 17 Mar. 2023, https://markets.businessinsider.com/news/stocks/stock-market-outlook-ubs-svb-bank-crisis-lehman-art-cashin-2023-3
5. “Odds of Recession Increase 10% After Bank Failures” Yahoo Entertainment, 16 Mar. 2023, https://www.yahoo.com/entertainment/odds-recession-increase-10-bank-155731909.html