Nancy Lazar — the chief global economist of investment bank Piper Sandler — said on Monday that the world is in the first part of a “very significant” recession.
During an interview with Fox Business, Lazar told anchor Maria Bartiromo that “It’s going to be a global recession pulling down [the] Euro zone in particular” and noted that “it looks like China GDP in the second quarter could also be negative.”
Lazar added that economic activity in the United States “will feel very, very weak” as growth slows down from last year’s recovery.
“Now we think the United States could not go into a recession. We have still plus 1% GDP for the U.S. this year, but that’s still a very significant slowdown from roughly 6% last year,” Lazar explained.
She added that similar fears of a recession occurred in 2015 and 2016.
“You didn’t get it, in part because the backbone of the United States is pretty healthy, which we still think is the case,” she told Bartiromo. “But, nonetheless, outside of the United States, indeed you do get a recession, led by the Euro zone given what’s going on with oil prices and global interest rates.”
Indeed, economists have been eyeing the broader impacts of high energy prices and the tapering of aggressive monetary policy.
President Joe Biden’s tenure in the White House has been marked by surging gas prices, with costs at the pump further accelerating due to the Russian invasion of Ukraine. As of Monday morning, the average price of regular gas is $4.12, according to AAA.
“Over the past 15 months, we’ve seen inflation grow higher than any time in the last 40 years. Perhaps the most painful driver of inflation has been the skyrocketing cost of gasoline at the pump,” Sen. Ted Cruz (R-TX) recently told the Senate Committee on Commerce, Science, and Transportation.
Meanwhile, the Federal Reserve recently made its first move to raise interest rates, thereby increasing the cost of borrowing money and making loans more expensive. Earlier this month, The 30-year mortgage rate surpassed 5%, rendering homeownership more expensive for American families.
“As Americans contend with historically high inflation, the combination of rising mortgage rates, elevated home prices and tight inventory are making the pursuit of homeownership the most expensive in a generation,” government-backed mortgage company Freddie Mac explained.
Lazar said that higher interest rates will help to curb breakneck inflation in the United States.
“I think we are going to have significant goods deflation,” she told Bartiromo, pointing to the price of used cars as an example. “We’ve seen used cars decline 6% just in a few months.”
The end of soaring price levels — despite relief offered to consumers — would be harmful to companies’ margins.
“On the one hand that’s positive in that you are going to send, obviously, the CPI significantly lower over the next year,” Lazar said, “but on the other hand, it’s not going to be pretty in that it’s going to affect company earnings, through lower earnings via weaker demand for products and also declining prices.”