Citi analysts have devised three scenarios to predict possible outcomes, as the world faces an extremely complex set of challenges. Currently, the Citi’s base case is resilient with a 40% chance, with the robust and recessionary scenario at 25% chance each.
Robust, resilitene and recession
“The resilient scenario expects Fed policy tightening to limit growth in the US and global economy this year. This will be offset to some extent by growth generated from low inventories and production recovery. In this scenario, strong corporate profits will shift to sectors with ‘durable demand’.”
“The robust scenario assumes that there is a greater risk in European markets than in the United Statesand that the conflict in Ukraine and Russian economic sanctions are not expanding further. An agreement between Ukraine, Russia and NATO would lower commodity prices and could lessen the urgency for the Fed to tighten monetary policy“.
“On In the recession scenario, the Fed would tighten rates too quickly for supply growth to meet slowing demand, ending in a recession in 2023. with a sharp drop in US stock prices. The projected path for 2-year US Treasuries, coupled with expectations of reduced Fed lending, suggests a growing recession risk in 2023.”
Source: Fx Street
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