Deutsche Bank Revises Outlook, Rules Out Recession for U.S.

Deutsche Bank has adjusted its forecast for the U.S. economy, no longer anticipating a recession this year. The reassessment comes amidst signs of cooling inflation and a labor market that appears to be achieving a “better balance” without a significant rise in unemployment.

Previously, the brokerage had projected a mild recession as the Federal Reserve tightened interest rates to combat inflation, leaving a narrow window for a soft landing. However, Deutsche Bank’s latest note on Monday indicates a shift in outlook, with the expectation that the U.S. economy will grow by 1.9% on a quarterly average basis in 2024, compared to the prior forecast of just 0.3%.

Matthew Luzzetti, Deutsche Bank’s chief U.S. economist, highlighted several factors contributing to the revised forecast. While acknowledging persistent challenges such as tight credit conditions, rising consumer delinquency rates, and a slowing labor market, Luzzetti noted the economy’s resilience thus far, suggesting a more favourable slowdown in 2024 than previously projected.

Despite the revision, Deutsche Bank still anticipates the Federal Reserve to commence interest rate cuts from June onwards. However, the magnitude of these cuts is now expected to be less aggressive, with the bank forecasting a total of 100 basis points (bps) of rate cuts for the year, compared to the earlier projection of 175 bps.

The U.S. economy’s robust performance in the fourth quarter, growing at a faster-than-expected rate of 3.3%, underscores its resilience. Strong consumer spending contributed to this growth, resulting in a full-year growth rate of 2.5%, defying earlier predictions of a recession following the Federal Reserve’s aggressive rate hikes.

Deutsche Bank’s revised economic outlook reflects a more optimistic view of the U.S. economy’s trajectory in 2024, signalling potential stability amidst ongoing challenges.