Deutsche Bank updated its view on the US economy’s outlook, saying it now expects the country to avoid a recession that many, including the bank, predicted last year.
“When we first adopted a mild recession as our baseline forecast, a key element was that, with an economy far from the Fed's objectives, the history of central bank-induced disinflations showed the path to a soft landing was narrow if not unprecedented,” analysts said in a Monday note.
“We now think the economy will land on this narrow path and that a recession will be averted with limited cost in the labor market,” they added.
DB highlighted the US economy’s impressive performance in 2023, achieving a commendable balance in the labor market without a significant increase in unemployment. Furthermore, they observed a drop in core PCE inflation to below 2% on an annualized basis during the latter half of the year.
The presence of beneficial dynamics, including the relaxation of financial conditions, may prolong these positive trends, analysts noted.
In its revised projections, the team now expects economic growth of 1.9% (Q4/Q4), a significant upgrade from the earlier estimate of 0.3%.
In line with this more optimistic outlook, they forecast a slight uptick in the unemployment rate to 4.1% over the next year, as the pace of payroll additions decelerates and labor force participation slightly increases.
As for its inflation predictions, the bank still believes it will steadily decline towards the Federal Reserve’s target, despite the possibility of a short-term uptick.
“Our inflation forecasts are little changed at rates within a few tenths of a percent of the Fed's objective, with core PCE and CPI ending the year at 2.2% and 2.6%, respectively,” they said.