The US economy, which has weathered the inflationary shock after the COVID-19 pandemic and the effect of tariffs without falling into recession, faces increasing risks related to rising oil prices, tensions in the financial sector, the sustainability of the artificial intelligence boom and growing government debt, according to analyses by leading economists and market participants cited by the “Wall Street Journal“, BTA writes.
The main factor of uncertainty is the war in the Middle East and the blockade of the Strait of Hormuz, which limits global oil supplies by up to 16 million barrels per day, or about 15 percent of pre-war demand. Historically, sharp jumps in oil prices have often preceded recessions, but economists do not expect such a scenario for now.
Michael Hay of “Société Générale“ points out that if the strait remains closed, global stocks could fall to historic lows, and the price of Brent could reach record values, comparable to the peaks of 2008. In the event of a more severe escalation, including attacks on energy infrastructure or transport routes, levels of up to $200 per barrel are not excluded, with the analyst himself noting that such a scenario is unprecedented.
At the same time, market expectations remain that such high prices will not last long. The chief economist at “Goldman Sachs“ (Goldman Sachs) Jan Hatzius estimates that if the Strait of Hormuz is opened by mid-April, the US economy will be about 0.4 percent smaller a year later than in a scenario without such a disruption - an effect that suggests slower growth but not a recession.
The second significant risk comes from the private credit market, estimated at about $1.3 trillion in the US and more than $2 trillion globally. This segment, which provides financing for companies with less access to bank loans, is under pressure as investors become more cautious and look to withdraw their funds, especially from riskier sectors such as software.
Michael Dimmler of Morningstar DBRS points out that the tension reflects a typical stage in the credit cycle, when loan quality deteriorates and new investors seek to withdraw their funds. Meanwhile, Christopher Whalen of Whalen Global Advisors warns of the risk of a “Lehman-like moment,” in which a massive withdrawal of funding could lead to systemic turmoil.
Richard Farley, a leveraged finance lawyer, also highlights the risk of a forced liquidation of credit portfolios, in which multiple investors sell at the same time, which could limit access to funding and affect the real economy through a decline in investment and employment.
The third risk is related to the boom in artificial intelligence, which has been a key driver of economic growth and stock markets in the past year. The largest US technology companies now account for about 35% of the S&P 500 index and plan to invest more than $2 trillion over the next three years, mostly in data centers and chips.
Todd Castagno of Morgan Stanley notes that energy and transportation constraints related to the conflict in the Middle East could make it difficult to build this infrastructure. According to him, funding for the AI ecosystem is already showing signs of being constrained, and any slowdown in investment could undermine one of the main drivers of growth.
The fourth risk stems from the state of consumption and public finances. Breno Braga of the Urban Institute notes that credit card delinquencies among low- and middle-income households are already above pre-pandemic levels. At the same time, spending is being sustained by wealthier households, buoyed by rising asset prices.
Economist Matthias Kerrig of Duke University estimates that for lower-income households, a $1 increase in fuel prices would represent about 2 percent of income, forcing these consumers to cut back on other spending.
At the same time, rising government debt is increasing the economy’s vulnerability, which is the fifth major risk. Yields on 10-year U.S. bonds have risen since the conflict began, and debt service costs are already eating up a significant portion of budget revenues. Analysts warn that a possible loss of investor confidence could lead to a sharp rise in interest rates and affect the housing market, investment and financial markets.
Former director of the Office of Management and Budget under President George W. Bush – Mitch Daniels, notes that such risks are often underestimated until they occur, warning that even a small change in sentiment can have significant consequences.
And although the base scenario predicts continued economic growth, a combination of external shocks and internal imbalances makes the outlook for the US economy more uncertain, and the development of the conflict in the Middle East and the reaction of financial markets will be of key importance, concludes “The Wall Street Journal“.