Top Economists Predict Credit Crunch and Commercial Real Estate Collapse

  • Top economists see a painful credit crunch and a bust in the commercial real estate market.
  • David Rosenberg predicted that the United States would tip into a recession by September.
  • “A recession is a very big call because it’s a haircut on national income,” he said.

This is an uncertain time for the US economy.

GDP growth slowed more than expected in the first quarter. More and more companies are announcing collective redundancies. Inflation has cooled to remain elevated, raising new questions about how far the Federal Reserve will raise rates.

Elsewhere, the turmoil has hit regional banks. Silicon Valley Bank collapsed last month and First Republic Bank could be the next shoe to fall.

The consensus vision has zigzagged and now looks less like a consensus. For what it’s worth, here’s what three leading economists are saying about the US economy.

David Rosenberg

The former chief North American economist at Merrill Lynch predicted that the United States would tip into a recession by September. He also sees a 20% drop in stocks and a damaging credit crisis.

On Blockworks’ on the margin podcast this week, the founder and president of Rosenberg Research offered some other hot takes.

  • “I don’t think there are enough rate cuts planned for next year. There is a serious risk that we will go back to zero in a recession that will eventually destroy demand and bring inflation down.”
  • “A recession is a really big call because it’s a haircut on national income. It’s like the whole country is taking a pay cut. It’s not that we’re taking the Lamborghini from 80 to 20. It’s that we’re going in the opposite direction.”
  • “It was like the Energizer Bunny – it gave us a bit more juice. But to say we’re not going to have a recession because of the lagged effects of the fiscal stimulus from two years ago is ludicrous. Leading indicators tell me the recession is actually starting this quarter or the next quarter. It’s definitely not a 2024 story.”

Jeremy Siegel

The Wharton professor said not to be fooled by the current upbeat earnings season as the US economy is in the grip of a credit crunch. “The impact is there, it’s just not in the data yet,” Siegel said. CNBC first quarter financial results.

In a weekly note to clients, Siegel also added:

  • “I still believe that the cumulative effect of rate tightening and banking repercussions will slow things down considerably and prevent the stock market from coming out of those high levels it has hit many times before.”
  • “I remain unusually cautious until the Fed ‘gets it’ and not only pauses but says they are starting to consider rate cuts. I think the real interest rate is too high to sustain a normal growth at this stage of the cycle.”

Mohamed El-Erian

Allianz’s chief economic adviser said major institutions like the Fed must adapt quickly to manage this unprecedented macro environment.

The top economist has broken down his outlook in a FinancialTimes column published on Friday.

  • “Markets will punish companies and their leaders if they fail to adapt. Indeed, we are likely to see more financial stress and bankruptcies for companies that lack resilience, as well as those whose operational approaches do not are not easily adaptable to a world of higher rates for The latter includes commercial real estate whose moment of truth will materialize as more than $1 billion in assets need to be refinanced over the next 18 months.
  • “Without [adaptability]the stabilizing and guiding role of US institutional maturity will weaken even more rapidly in the face of eroding credibility, turning this once dominant US comparative advantage into an even greater source of national and global instability .”

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