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According to Goldman’s 2023 macroeconomic, the recession in the UK will come close to the crunch in sanctioned Russia.
Goldman Sachs (NYSE: GS) economists recently predicted that in 2023, the economic recession in the UK could hit as badly as Russia’s. In its macro-outlook for this year, Goldman touched on how the sharp decline in British household living standards impacted activity. According to the leading American bank, there could be a 1.2% contraction in the United Kingdom’s real GDP throughout 2023. In addition, Goldman stated there could be a 0.9% British economy expansion in 2024.
Goldman’s initial 1.2% forecast is well below the real GDP of all other Group of Ten (G-10) major economies. Only Russia is marginally worse off at a 1.3% contraction due to its protracted war in Ukraine. Additionally, the Eastern European powerhouse subsequently came under a torrent of hefty Western economic sanctions that have drained its economy’s lifeblood. According to Goldman, Russia could see a 1.8% economic expansion in 2024.
Meanwhile, Goldman also projected that there could be a 0.6% contraction in the German economy for 2023. Furthermore, the multinational investment bank added that this development could be followed by a 1.4% expansion next year. Germany currently ranks as the next worst performer after Russia and the United Kingdom. However, Goldman was more optimistic in its US projections, with a 1% expansion this year, as well as another 1.6% growth in 2024.
Goldman UK-Russia 2023 Recession Comparison Falls Below Market Consensus
The Goldman UK projection, and comparison with a recession in Russia, falls below what the bank cites as a market consensus. This consensus estimates a 0.5% contraction in 2023 and a 1.1% expansion the following year. However, in late November, the Organisation for Economic Co-operation and Development (OECD) also forecasted that Britain would lag significantly behind other developed economies. According to the OECD, this delay could occur over the coming years and hold sway despite the UK facing the same macroeconomic constraints.
Goldman Chief Economist Jan Hatzius and his team pointed out that the eurozone and the UK are already both in a recession. According to the Goldman economic team, the aforementioned regions have already sustained a much more significant increase in household energy bills. The team concludes that inflation in Britain and the Euro area could drive inflation to higher peaks not seen elsewhere. Furthermore, the Goldman team of economic analysts added:
“In turn, high inflation is set to weigh on real income, consumption, and industrial production. We forecast further declines in real income of 1.5% in the euro area through 2023Q1 and 3% in the UK through 2023Q2, before a pickup in H2.”
Chief economist at KPMG UK, Yael Selfin, also weighed in. According to Selfin, the surge in food and energy costs and higher overall inflation had already eroded household purchasing power. In her own words:
“Rising interest rates have added another headwind to growth. Lower income households are particularly exposed to the mix of current price pressures, as the most affected spending categories largely fall on necessities, with few substitutes in the short run.”
Selfin further added that households would cut back on discretionary spending this year due to the income squeeze.