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A recession in the US seems likely, there are three ways it can hit the economy

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Rising gas prices are putting more pressure on the US economy.

Bloomberg | Getty Images

The odds of the US economy entering a recession by next year are more than 50%, said Richard Kelly, head of global strategy at TD Securities, on Monday, outlining three possible ways it could be hit.

Rising gas prices along with Federal Reserve hawks and a slowing economy in general are among the triple risks facing the world’s largest economy right now, according to Kelly.

Could that increase the likelihood of a recession? “I don’t think that’s a possibility,” he told CNBC’s Street Signs Europe.

“The odds of a recession in the next 18 months are greater than 50%,” Kelly added.

However, it is difficult to predict exactly when this contraction might occur.

Kelly said the economy could slip into a technical recession — defined as two consecutive quarters of negative growth — once the second quarter of 2022 is over. Analysts will be watching closely the Bureau of Economic Analysis on July 28 for early estimates on that.

Instead, he said, the fallout from higher gas prices in the wake of Russia’s unprovoked invasion of Ukraine and continued interest rate hikes by the Federal Reserve could affect the economy by the end of the year or early 2023.

And if the US can weather it all, a general slowdown could throw the wind out of the economy’s sails but for mid-to-late 2023.

“You really have three spots of slack right now in the US economy,” Kelly said.

“We haven’t even reached peak gas price delays, and the Fed’s increases aren’t really going until the end of this year. That’s where the peak drag in the economy is. I think that’s where the near-term risks of a US recession linger right Now “.

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“Then, if you get past that, there’s an overall gradual slowdown as we probably get into the middle or back half of 2023.”

Investment firm Muzinic agreed on Monday that the next recession is not a question of “if” but “when”.

“There’s going to be a recession at some point,” Tatjana Grill Castro, co-head of public markets, told CNBC, noting that the upcoming earnings season could provide a gauge of exactly when that might happen.

“Where the profits come in is for investors to determine when a recession is likely.”

The comments add to a chorus of voices that have suggested the economy could be on the cusp of a recession.

The global economic outlook has changed recently, and it is now easier to assess how different parts of the world are responding to different pressures, David Roach, veteran investment strategist and president of Independent Strategy, said on Monday.

“You can now make detailed forecasts for different parts of the world which are themselves very different from the picture of a blanket recession,” he said.

Roche said he considered the recession to be a 2-3% loss of jobs in a given economy, which suggests that a recession in the United States may be somewhat off. Data released Friday by the Bureau of Labor Statistics showed stronger-than-expected job growth, with nonfarm payrolls increasing by 372K in June, beating expectations of 250K.

However, he indicated – This is not the first time – That Europe is on the brink of what he calls “war renunciation”, as the fallout from the war in Ukraine has increased economic pressure on the region, particularly with regard to energy and food shortages.

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He said, “Europe may have its own energy crisis that leads to a war stagnation. The stagnation of war.”

It comes like Nord Stream 1, the primary pipeline that supplies natural gas to Europe from Russia closed this week for maintenance, raising fears that it could be shut down indefinitely due to ongoing controversies over Ukraine sanctions.

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