A US recession is likely around the corner, according to a new forecast from Societe Generale economist Kokou Agbo-Bloua.
Agbo-Bloua, the global head of economics, cross-asset and quant research at the $1.6 trillion French banking giant says the Federal Reserve is battling the effects of money printing, the war in Ukraine and an excess in savings that was created by government handouts in 2020.
In a new interview with CNBC, the economist predicts a significant slowdown in the US economy in Q1 of next year.
“The number one ‘original sin,’ so to speak, is that governments have spent a huge amount of money to maintain the economy that was put in hibernation to save human lives, so we’re talking roughly 10-15% of GDP…
The second point — obviously you had the war in Ukraine, you had the supply chain disruptions.
But then you also had this massive buildup in excess savings plus ‘greedflation,’ so companies’ ability to raise prices by more than is warranted, and this is why we see profit margins at record levels over the past 10 years.”
Agbo-Bloua says the Fed will continue to raise interest rates in its fight against inflation until it triggers a rise in unemployment and a reduction in demand for goods and services that forces the economy into recession.
“The central banks need to trigger a recession to force unemployment to pick up and create enough demand destruction, but we’re not there yet.”
In the US, Agbo-Bloua says the initial signs of an economic downturn will manifest in corporate profit margins, followed by a reduction in consumer spending.
“We think that the recession or slowdown should occur in the U.S. in Q1 of next year because we think the cumulative tightening is ultimately going to have its effects. It’s not disappearing.”
Societe Generale does not expect a recession in Europe, but does anticipate a significant slowdown.
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