Goldman Sachs economists recently predicted that by 2023, the UK’s economic recession could be as severe as Russia’s. In its macro outlook for this year, Goldman cited the impact of the sharp decline in UK household living standards on activity.
According to the leading U.S. bank, there could be a 1.2 percent contraction in U.K. real GDP throughout 2023. In addition, Goldman said the UK economy could expand by 0.9 percent in 2024.
Goldman’s initial forecast of 1.2 percent is well below the real GDP of all other major Group of Ten (G-10) economies. Only Russia is slightly worse off, with a 1.3% contraction, due to its protracted war in Ukraine. In addition, this Eastern European powerhouse has subsequently been subjected to a torrent of heavy Western economic sanctions that have drained the lifeblood from its economy. According to Goldman, Russia could see an economic expansion of 1.8 percent in 2024.
Meanwhile, Goldman also predicted that the German economy could contract by 0.6 percent in 2023. Furthermore, the multinational investment bank added that this could be followed by a 1.4 percent expansion next year. Germany is currently the worst performing country after Russia and the UK. However, Goldman was more optimistic in its U.S. projections, with a 1 percent expansion this year, as well as another 1.6 percent growth in 2024.
Goldman UK-Russia comparison for 2023 recession is below market consensus
Goldman UK’s projection and comparison to a recession in Russia is below what the bank cites as the market consensus. That consensus estimates a 0.5% contraction in 2023 and a 1.1% expansion the following year. However, in late November, the Organization for Economic Cooperation and Development (OECD) also forecast that Britain would lag significantly behind other developed economies. According to the OECD, this lag could occur over the next few years and persist as the U.K. faces the same macroeconomic constraints.
Goldman chief economist Jan Hatzius and his team pointed out that both the eurozone and the U.K. are already in recession. According to the Goldman economics team, the aforementioned regions have already experienced a much larger increase in household energy bills. The team concludes that inflation in Britain and the Eurozone could push inflation to new highs elsewhere. In addition, Goldman’s team of economic analysts adds:
“In turn, high inflation should weigh on real income, consumption, and industrial production. We expect further declines in real income of 1.5 percent in the eurozone through the first quarter of 2023 and 3 percent in the UK through the second quarter of 2023, before a recovery in the second half of the year.”
KPMG UK’s chief economist, Yael Selfin, also spoke. According to Yael Selfin, soaring food and energy costs and higher overall inflation have already eroded household purchasing power. Here are her own words:
“Rising interest rates have added another headwind to growth. Low-income households are particularly exposed to the current set of price pressures, as the spending categories most affected fall largely into necessities, with few short-term substitutes.”
Yael Selfin added that households would reduce discretionary spending this year due to income compression.