One reason for the Fed to hesitate: The risk that weakening corporate earnings will prompt businesses to rein in investment and hiring, slowing overall growth.
Sinai said he has raised his odds of a recession in the next 12 months to a still-low 15 percent, from 10 percent previously, on the possibility that profit-pinched U.S. multinational companies will curb spending post Brexit.
The U.K. economy looks likely to turn down early next year as the results of the EU referendum ripple throughout the country, according to economists at Goldman Sachs Group Inc. The Bank of England will decide this week whether to cut interest rates to a record low.
Growth Downgrade
The rest of the Europe will also take a hit, but keep on growing. The International Monetary Fund on Friday cut its 2017 growth forecast for the euro area to 1.4 percent from the 1.6 percent it predicted in April, citing the U.K.’s vote. The Washington-based lender sees the region’s economy expanding 1.6 percent in 2016.
Though not stellar, such steady growth would still be a marked improvement from 2012 and 2013, when GDP contracted as the region struggled to contain a sovereign debt crisis.
Unlike the U.S., Europe remains saddled with bad bank loans and elevated unemployment holding back growth. That’s being offset by massive stimulus from the European Central Bank, which the IMF said should be expanded if inflation doesn’t rise.
“We are still in post-crisis adjustment,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen. And “we’ll be in this situation for a while, maybe three to five years.”
Asian Drift
The sense of drift is also evident in once high-flying Asia. While it remains the world’s fastest expanding region, weaker demand for its exports, lower commodity prices and China’s slowdown are dragging output down.