RBC Predicts 70% Chance of Recession in 2024: Key Factors Explained
RBC Global Asset Management, a prominent financial institution, has placed the likelihood of a recession occurring in 2024 at a notable 70%. In their recent 2024 outlook, the firm's strategists outlined six key reasons supporting this prediction, despite the current economic indicators showing inflation cooling, low unemployment, and stock markets nearing all-time highs.
Federal Reserve's Restrictive Rate Hikes: RBC asserts that the Federal Reserve's ongoing cycle of interest rate increases has reached a level potent enough to potentially trigger an economic downturn. The strategists believe the current policy is deeply restrictive, especially if the economy continues to show signs of slowing down or if inflation further cools down.
Deteriorating Economic Data: The firm points to weakening economic data, which indicates potential further declines in economic health.
Recession Scorecard Warnings: RBC's internal recession scorecard is showing several red flags, including the inversion of 2-year and 10-year yield curves as well as 3-month and 10-year curves. These are traditional indicators of an impending recession. Additionally, the scorecard highlights tightened financial conditions and lending standards.
Business-Cycle Model Indicators: According to RBC's business-cycle model, the economy is currently in the late stages of the cycle, which typically precedes a downturn.
Unsustainable Economic Operation Level: The strategists argue that the economy is currently operating beyond a sustainable level. Therefore, a period of below-average activity is needed to bring things back into balance.
Global Central Banks' Inflation Control Efforts: Central banks globally are determined to bring inflation down to pre-pandemic levels. To achieve this, they might have to induce a period of economic weakness, particularly to control wage growth and pricing power.
Although RBC anticipates that any upcoming recession would be relatively mild and short, with fewer job losses than usual, they caution that it will still cause significant discomfort. Businesses, households, and financial markets can expect to experience considerable challenges during this period. The forecast by RBC highlights the complex interplay of monetary policy, economic indicators, and global financial trends, painting a cautious picture for the near future.