U.S. Economy: On the Brink of Recession with Inflation Remaining High

The U.S. economy contracted by 0.4 percent in the first quarter of 2022 compared with the previous quarter (annualized 1.6 percent). However, this was mainly due to the fact that exports declined significantly as a result of the low momentum of the global economy. Public sector consumption was also down. In addition, companies were more reluctant to build up inventories than in the final quarter of 2021, when they had replenished their stocks exceptionally strongly. Encouragingly, however, both private consumption and investment increased at solid rates.

Only moderately positive or even negative economic growth rates can be expected again in the further course of the year. In the second quarter of 2022, we might even see another slightly negative growth rate. The US economy will certainly not grow strongly. The headwinds are too strong: Inflation, war in Ukraine and lockdowns in China are weighing on further development. In addition, monetary policy is becoming more restrictive. The U.S. Federal Reserve will continue to raise interest rates and also start to shrink its balance sheet. However, despite continuing interest rate increases, inflation will remain elevated and will probably only gradually decrease. In June, inflation increased by 1.0 percent compared to May. Within one year, inflation increased by 8.6 percent, which is worryingly high.

For 2022 as a whole, I expect economic growth of only 1.6 percent followed by 1.7 percent in 2023. Inflation will remain high this year with an annual average of more than 7.0 percent. In 2023 however, I expect inflation of somewhat less than three percent.

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