The US economy: Experts raise recession forecasts amid rising tensions in the Middle East
Amid the accelerating military escalation in the Middle East and the intensification of the conflict, leading economists have raised their estimates of the risks of a contraction in the US economy, amid a wave of uncertainty hitting global markets and exacerbating pressure on the labor market since last year.
The latest estimates from the world’s leading financial institutions have revealed a sharp jump in the prospects of the world’s largest economy entering recession over the next twelve months:
- Moody’s Analytics raised its forecast to 48.6%
- Goldman Sachs revised its estimate to 30%
- Wilmington Trust estimated odds at 45%
EY Parthenon put the figure at 40%, with a warning that these odds could rise rapidly in the event of a longer-term or more intense conflict in the Middle East.
This sharp upward rise in expectations is compared to the normal risk level of around 20% over any twelve-month period under normal circumstances, reflecting the scale of concern that dominates the economy.
In a statement to CNBC, Mark Zandi, chief economist at Moody’s Analytics, expressed deep concern about the current outlook, saying, “I am concerned that the risk of a recession is alarmingly high and is constantly increasing… The recession is a real threat here”.
Zandi added that the road out of this crisis has become very narrow, and it is more and more difficult to see the other side.
The current crisis brings to mind an unmistakable economic fact: Every economic recession the United States has experienced since the Great Depression, with the exception of the COVID-19 pandemic, has been preceded by an oil price shock.
In the past month alone, gasoline prices at gas stations have jumped by $1.02 a gallon, a 35% increase, according to the AAA.
Zandi warned: “The negative effects of rising oil prices are first and foremost… If oil prices stabilize at their current levels until the end of the second quarter, it will push us into recession”.
The labor market is stagnating, and jobs outside of health care are collapsing, along with energy prices, the biggest pressure on the US economy.
In the whole of 2025, the economy added only 116,000 jobs, with a loss of 92,000 jobs in February alone.
Although the unemployment rate is stable at 4.4%, this stability is mostly due to fewer layoffs, rather than a significant increase in employment.
Even more worrying is the limited scope of employment. Excluding significant gains in the healthcare sectors, which exceeded 700,000 jobs, jobs outside these sectors fell by more than half a million jobs over the past year.
Dan North, chief US economist at Allianz, commented on the scene: “It’s not possible to run a railroad with just one locomotive”.
Consumers are losing confidence, and 65% expect a recession is no longer just a concern for economists, it has extended to American consumers, whose spending accounts for more than two-thirds of economic growth.
According to a survey conducted by consumer website NerdWallet, 65% of respondents predicted a recession over the next 12 months, up 6 percentage points from the previous month.
The twin fears of rising inflation and declining growth have raised recent concerns about stagflation, the difficult economic mix that the United States suffered in the 1970s and early 1980s.
But US Federal Reserve Chair Jerome Powell dismissed that description at a press conference following last week’s monetary policy meeting, where the central bank kept the benchmark interest rate within a range of 3.5% to 3.75%.
“This term was popular in the 1970s, when unemployment was in the double digits, and inflation was very high,” Powell said.
The situation is completely different now; “It’s a very difficult situation, but it doesn’t compare to what they faced in the 1970s”.
Despite these bleak outlooks, there are still those who believe there is an opportunity to avoid the worst.
Experts believe that a diplomatic solution that ends the war and restores the flow of oil to the Strait of Hormuz could change the equation entirely.
The stimulus package from the 2025 Inclusive Economy Act, along with easing restrictions and increasing tax refunds, could help consumers counter rising prices and spur growth.
Dan North concludes: “There is strong support in the market… This is why I am reluctant to use the term slowdown, but we are definitely seeing a slowdown this year”.
