US economy headed for downturn in second half of 2023, according to forecasters

FORECASTERS see the US economy continuing to cool in the current quarter, before a further slowdown in consumer spending and pullback in business investment cause the economy to shrink in the second half of the year. 

Gross domestic product is seen rising an annualised 0.5 per cent in the second quarter, according to the latest Bloomberg monthly survey of 70 economists. While slightly better than the 0.2 per cent rate expected a month ago, reflecting an upward adjustment in household spending to a still-weak 1 per cent, the latest projection is less than half the first-quarter pace. 

The chance of a recession over the next year held steady at 65 per cent, according to 41 respondents. Forecasts for the Federal Reserve’s preferred price gauges inched higher, and economists now see a sharper decline in private investment in the second half of the year than previously projected. 

“As firms struggle with higher financing costs and restricted credit in 2023, we expect reductions in capex and job cuts that will ultimately lead to a mild recession in the second half of the year,” said Luke Tilley, chief economist at Wilmington Trust Corp.

The survey, conducted May 12-17, also showed economists still see the Fed staying on hold through the end of the year before cutting the benchmark lending rate in the first quarter of 2024. BLOOMBERG