Economists are dialing back recession risks, The Wall Street Journal reported. Easing inflation, a still-strong labor market and economic resilience led business and academic economists polled by The Wall Street Journal to lower the probability of a recession in the next 12 months to 54% from 61% in the prior two surveys. While that probability is still high by historical comparison, it represents the largest month-over-month percentage-point drop since August 2020, as the economy was recovering from a short but sharp recession induced by the COVID-19 pandemic. It reflects the fact that the economy has kept growing even as the Federal Reserve has raised interest rates and inflation declined. In the latest survey, economists expected gross domestic product to have grown at a 1.5% annual rate in the second quarter, a sharp uptick from 0.2% in the previous survey. They still expect GDP to eventually contract, but later, and by less, than previously. They expect the economy to grow 0.6% in the third quarter, in contrast to the 0.3% contraction expected in the prior survey, followed by a 0.1% contraction in the fourth. Forecasters said GDP would increase 1% in 2023, measured from the fourth quarter of a year earlier, double the previous forecast of 0.5%. Nearly 60% of economists said their main reason for optimism about the economic outlook is their expectation that inflation will continue to slow. The Labor Department’s consumer-price index climbed 3% in June from a year earlier, sharply lower than the peak of 9.1% in June 2022 and the slowest in more than two years. The Fed’s preferred inflation measure has fallen from 5.4% in March 2022 to 4.6% in May. Economists expect it to reach 3.7% by the fourth quarter of this year, though that is still well above the Fed’s 2% target.
