Leading investment bank Goldman Sachs has issued a starker outlook for the US economy, raising its recession risk prediction from 15% to 25%. This comes amidst growing concerns about a potential financial crisis similar to 2008, fueled by the BRICS alliance’s (Brazil, Russia, India, China, and South Africa) efforts to move away from the US dollar.
The increased recession risk hinges heavily on the US job market. A weak August employment report, following a disappointing July showing, could trigger a domino effect. Goldman Sachs economists led by Jan Hatzius acknowledge the “limited” recession risk but warn that a continued slowdown in job growth could lead to a deeper economic downturn.
Jobs Market As The Bellwether
A struggling US job market would be a first domino, potentially leading to a stock market crash. This aligns with historical trends as a strong job market is often seen as a key indicator of a healthy economy. Conversely, a weak jobs report could trigger a panic and capital flight, mirroring the chaos of the 2008 financial crisis.
BRICS And De-Dollarization A Complicating Factor
The BRICS alliance’s ambition to de-dollarize their economies further complicates the picture. If BRICS nations successfully decouple their trade from the US dollar, they could potentially insulate themselves from a US recession. This would leave the US economy in a more vulnerable position, potentially accelerating the recessionary spiral.
Hope Hinges on Job Growth
Goldman Sachs acknowledges the potential for a positive outcome if job growth rebounds by the end of 2024. A robust labor market would dampen recession fears and limit the effectiveness of BRICS‘ de-dollarization agenda. However, the bank’s warning hinges on the upcoming August employment report, which will be a crucial indicator of the US economy’s trajectory.
The next few months will be critical for the US economy. The August employment data will be closely watched by investors around the world. A strong showing could ease recession fears, while a weak report could trigger a market panic and fuel de-dollarization efforts by countries like China and India. The coming weeks are likely to see heightened volatility as the global financial landscape navigates this delicate situation.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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