There is a greater than 50 percent chance that the United States will sink bank into a recession before 2013, the Federal Reserve Bank of San Francisco said in a report today.
In it’s latest report, the FRBSF said the European debt crisis, as well as the Japanese earthquake, show the U.S. is still vulnerable to international discruptions and indicate the “significant possibility of a U.S. recession over a 24-month period.”
“Updated forecasts suggest that the probability of a U.S. recession has remained elevated and may have increased over the past year, in part because of foreign financial and economic crises,” the FRBSF said.
“Viewed through the domestic lens, the immediate risks of recession appear to be low, but gradually increasing,” the report continued. “International risks, though less precisely measured, are the mirror image. Risks are highest in the very short run, but then fade. In combination, the data suggest vigilance. The U.S. economy is fragile with limited ability to withstand shocks. Yet, as the economy strengthens, recession risks will gradually abate beginning in the second half of 2012.”
In light of the Eurozone crisis and the Japanese earthquake, the FRBSF revised its 2010 odds of another U.S. recession and found the chances worse than a coin flip.
“[O]dds are greater than 50% that we will experience a recession sometime early in 2012,” the FRBSF said. “Because the international odds of recession are more imprecisely estimated, one must be careful with a strict interpretation of this result. But the message is clear. Prudence suggests that the fragile state of the U.S. economy would not easily withstand turbulence coming across the Atlantic. A European sovereign debt default may well sink the United States back into recession. However, if we navigate the storm through the second half of 2012, it appears that danger will recede rapidly in 2013.”