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Deutsche Bank Stunner: ‘We Will Get A Major Recession’
Starting last year, Deutsche Bank began publishing a new series of papers dedicated to furthering what Chief Economist David Folkerts-Landau described as "intellectual diversity." They called the new series "What’s in the tails?"
The express goal was to "stimulate debate" by presenting "reasonable alternatives" to the bank’s house views and central forecasts.
The inaugural edition found Folkerts-Landau joined by Peter Hooper and Jim Reid, who together explored a scenario in which post-pand
“Deutsche said the downturn could begin in earnest late in 2023”
Given how quickly things are changing now, that estimate may well be a year too late. There are a growing number of real world indicators already flashing yellow lights. For instance truck bookings, a chip glut, cellphone demand, streaming service subscriptions and even housing demand. Canaries or not worth noting?
Russia has threatened to cut gas deliveries to Poland and Bulgaria beginning tomorrow. If escalations continue, ‘22 wouldn’t be out of order.
I am in the camp that everything happens much faster now and expect the beginning of a recession by year end. Two dictators who can’t back down from their respective monomanias of Zero Covid and Imperial Russian glory are supersizing our already out of control inflation. There are so many fragilities built into our economic and political structures and the forces being unleashed are so powerful that I can’t see the center being able to hold. Plus, we have been conditioned by 14 yeors of low inflation to think that the Fed will always back down when it sees the markets tanking, that we can’t conceive of the end of the Fed put. But all things must pass.
Derek, I’ll take the other side of that. Both of us agree that a downturn is in the cards and I do believe that we’ll see a recession in a year or so. BUT, I think we get a MAJOR recession (50%+ drawdown in equities versus 20% or so in a year) is in the 2025/2026 timeframe.
. BUT, I think we get a MAJOR recession (50%+ drawdown in equities versus 20% or so in a year) is in the 2025/2026 timeframe.
The way the world is going…I hope humanity will be here in 2026.
I believe a slowdown is in process now. But that is not going to be a recession but far slower nominal growth that is going to feel like one (think nominal growth south of 4.5%). For my forecast to be right, you will see flat real gdp and inflation around 4% this year. After that expect an agonizingly slow bounce back. And credit is going to tighten up quite a bit.
Are we nearly there? GDPNow forecast for 1Q22 is +0.5% (YOY seas adj rate) and midpoint of economists’ forecasts is around +1.0%.
The last time GDPNow pointed to a big deceleration to near-zero (3Q21, GDPNow est +0.2% after reported 2Q21 real GDP +6.7%) real GDP was indeed a lot slower although not as low as GDPNow (reported 3Q21 at +2.1%).
If reported 1Q22 real GDP comes in around +2%, it will indeed be a lot slower than reported 4Q22 real GDP +6.9%.
After this morning’s GDP report, it’s telling that the earliest of calls (by Deutsche) for an early recession may, in fact, be terribly late (so even earlier than expected). Will their call for a worse than expected recession follow the same pattern and be even worse than even they are calling for?
We keep looking for something to “break” in the global financial markets, whether it’s a default, margin call, liquidity squeeze, etc. As this post suggests, maybe something’s already broken and maybe that’s many of the economic models we’ve come to rely upon that don’t work with negative rates and gov’t thumbs refusing to let the economy even countenance a tare weight. With all the other problems extant, we may have overlooked the real possibility we may be, in fact, driving blind.