Deutsche Bank Predicts Major Recession – Newser

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The prediction distinguishes Deutsche as the most pessimistic of major Wall Street banks

Posted Apr 27, 2022 3:00 AM CDT


(Newser)

In a report issued to clients Tuesday, analysts with Deutsche Bank predicted a “major recession” next year, reports CNN. The bank’s analysts based their gloomy forecast on historical analysis of the Fed’s response during periods of high inflation and low unemployment. When looking at its inflation and unemployment targets, the Fed is currently “much further behind the curve” than anytime since the 1980s, “when extremely high inflation forced the central bank to raise interest rates to record highs, crushing the economy.” War in Ukraine and COVID lockdowns in China only add to inflationary pressures, and the thinking is that only a major recession will restore balance. Per Bloomberg, Deutsche analysts “assume conservatively that a Fed funds rate moving well into the 5% to 6% range will … do the job.”

However, as CNN also notes, the forecast distinguishes Deutsche as the most pessimistic of all major Wall Street banks. Economists with Goldman Sachs recently said the economy does not “need a recession,” but it does “need growth to slow to a somewhat below-potential pace.” UBS analysts concur, saying rate hikes and a subsequent cooldown is necessary, but recession is not inevitable given the economy’s strong expansionary potential.

Forbes reports that consultants with London-based Capital Economics think Europe is more at risk of recession than the US, for two major reasons. First, Europe has a lower “potential economic growth rate,” meaning it has less cushion if conditions sour. Secondly, Europe “imports far greater quantities of commodities than does the US,” making European countries more vulnerable to continued inflation and supply issues in energy and food markets. Sanctions on Russia make everything more complicated and increase the pressure on consumers to cut back. According to Capital Economics, regardless of whether or where recession hits, the “performance of the world’s major economies is likely to be weaker than most [analysts] currently anticipate.” (Read more Deutsche Bank stories.)

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