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Banks (Finance)

Deutsche Bank Warns of Deeper US Recession than Previously Expected

Strategic Insights

— 2 min read

The US economy is headed for a deeper recession than initially anticipated, according to Deutsche Bank, which has become the first major bank to predict a US recession in April. The bank's economists now expect the economy to slow dramatically, with a 3.1% annualized contraction in the third quarter of 2023 and a 0.4% contraction in the fourth quarter. This marks a significant change from Deutsche's previous forecast, which had predicted the first contraction for the fourth quarter. The bank's revised expectations are attributed to the Federal Reserve's aggressive hiking path, which has tightened financial conditions and led to clear signs of slowing economic data.

Key Takeaways:

  • Deutsche Bank predicts a deeper recession than initially expected, with a 3.1% annualized contraction in the third quarter of 2023 and a 0.4% contraction in the fourth quarter.
  • The bank attributes this revised forecast to the Federal Reserve's aggressive hiking path, which has tightened financial conditions and led to clear signs of slowing economic data.
  • Deutsche Bank expects unemployment to peak at 5.5% in 2024, up from the current level of 3.6%.
  • The bank's economists compare this recessionary scenario to the downturns of the early 1990s and 2000s, describing it as modest.
  • Goldman Sachs estimates the chances of a US recession arriving over the next year have doubled, from 15% to 30%, while the chances of a recession within two years have risen to just under 50%.

Statistics:

  • 3.1%: Deutsche Bank's expected annualized contraction in the third quarter of 2023.
  • 0.4%: Deutsche Bank's expected contraction in the fourth quarter of 2023.
  • 0.7%: Deutsche Bank's expected growth rate for the entire year of 2023.
  • 3.6%: Unemployment rate in the US, where it has hovered for the past three months.
  • 5.5%: Deutsche Bank's expected peak unemployment rate in 2024.
  • 15%: Goldman Sachs' initial estimate of the chances of a US recession arriving over the next year.
  • 30%: Goldman Sachs' revised estimate of the chances of a US recession arriving over the next year.
  • 50%: Goldman Sachs' estimated chance of a recession within two years.

Sources:

  • Deutsche Bank - cited in the article as the source of the forecast.
  • Federal Reserve - [https://www.businessinsider.com/fed-rate-hike-june-fomc-decision-interest-rates-inflation-surging-2022-6](https://www.businessinsider.com/fed-rate-hike-june-fomc-decision-interest-rates-inflation-surging-2022-6)
  • Nomura - [https://markets.businessinsider.com/news/bonds/us-recession-federal-reserve-interest-rates-inflation-housing-gdp-nomura-2022-6](https://markets.businessinsider.com/news/bonds/us-recession-federal-reserve-interest-rates-inflation-housing-gdp-nomura-2022-6)
  • Goldman Sachs - [https://markets.businessinsider.com/news/currencies/us-economy-recession-risk-doubles-gdp-fed-inflation-wages-goldman-2022-6](https://markets.businessinsider.com/news/currencies/us-economy-recession-risk-doubles-gdp-fed-inflation-wages-goldman-2022-6)
  • The National Bureau of Economic Research - [https://www.nber.org/research/business-cycle-dating](https://www.nber.org/research/business-cycle-dating)

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