Economist David Rosenberg: "It is premature to rule out a recession in the United States"

• "Two-thirds of last year's growth came from fiscal policy, which was a huge antidote to what the Fed was doing"

While most investors on Wall Street expect the US economy to have a soft landing, renowned economist David Rosenberg is warning of a possible recession this year, according to Business Insider.

In his opinion, the materialization of such a scenario would "derail" the stock market, as investors would be caught on the wrong foot, as happened in 2007 and 2000.

"I think it's premature to rule out a recession, as others are doing, just because it hasn't happened yet," Rosenberg told CNBC, as quoted by Business Insider. "To say the recession won't happen just because it hasn't happened yet is like me saying from my office in Toronto that if it didn't snow in December, winter was stopped. Everyone did that in 2007."

According to the founder and chairman of Rosenberg Research, one of the main reasons why the US economy has remained robust in 2023, despite aggressive interest rate hikes by the Federal Reserve, is the fiscal stimulus, but that will have the opposite effect this year.

"Last year's fiscal policy added over four percentage points to nominal GDP growth, which was just over 6%, so two-thirds of last year's growth came from fiscal policy "juice", which was an antidote huge for what the Fed was doing," Rosenberg said.

Among the US government's fiscal incentives are the CHIPS Act (which aims to strengthen US competitiveness against China by investing billions of dollars in semiconductor manufacturing and scientific research) and stepping up efforts to boost US manufacturing growth.

This year, Rosenberg expects the 2023 fiscal stimulus to have the opposite effect, reducing economic growth by 1.2 percentage points, which will hurt the stock market. "During election years, the fiscal stimulus pumped into the economy leads, on average, to an increase of approximately one percent of GDP. Not in 2024; the problem for Democrats is that they don't control Congress and Republicans will hardly agree to step in," Rosenberg wrote in a letter to clients.

In his opinion, the lack of fiscal incentives, along with the delayed effects of the Fed's monetary policy tightening, should have an impact on the economy, which could slide into recession, writes Business Insider.