Deprcon Outlook

June: Dark clouds keep gathering

The world economy is, slowly but surely, edging closer to a point, where we are likely to witness several detrimental developments manifesting at the same time. Thus, the perfect storm, which eventual emergence we have been warning for some time, is gathering strength under the (somewhat ostensible) calm surface of the economy.

During the past 10 months, we have narrowly avoided its onset with the extraordinary actions of authorities (most notably central bankers) and the exceptionally mild winter in Europe. However, none of its underlying causes, e.g. in the banking sector, have been addressed, which makes our outlook rather grim.

We are building a metric for U.S. banking sector detailing the risk of bank failures. We will publish the first version of it, with the list of the most and least vulnerable banks, during the summer.

GDP Forecasts

(GnS Economics, OECD, Bank of Finland, Q-to-Q). Forecasting the path of the economy has been exceptionally challenging during the past three years, because of the extra-ordinary actions of the authorities. Our recession forecast for the Eurozone (and Finland) has been rather accurate (see, e.g., this), but the U.S. recession is taking longer to appear than we previously anticipated. Our nowcasts, on the other hand, have produced good results for the growth of the U.S. gross domestic product. In May, for example, we forecasted that the U.S. economy would grow 2% (annualized, 0.5% Q-to-Q) in the second quarter. According to the first estimate, the U.S. economy did just that.