Economist calls ‘no landing’ recession scenario possible only ‘in fantasy land’
There’s a brand new buzzword circulating amidst recession fears. It’s known as a “no landing” situation, however one economist says it is so unlikely that if it occurs, economists would possibly throw away their textual content books.
What is a no touchdown? According to Sal Guatieri, senior economist and director of economics for Bank of Montreal, it is first essential to know what the other of it’s – a “hard landing.”
“Economists generally use that term to mean a pretty typical recession or worse – a standard recession where GDP could contract two to four per cent, and unemployment rate could go up two to four percentage points,” Guatieri instructed CTVNews.ca over the cellphone on Monday.
Guatieri additionally outlined another state of affairs often known as a “soft landing” – when the central financial institution lowers inflation to the goal or restores value stability with out a recession
“It avoids a recession, but still requires the economy to slow and weaken to the point where the unemployment rate moves up a little bit,” he mentioned.
“Basically, the central bank tries to achieve sub-potential economic growth. So weak enough growth that cools inflation, yet still results in some increase in the unemployment rate.”
In different phrases, a delicate touchdown is when the economic system is not rising quick sufficient to accommodate all of the folks on the lookout for jobs, he defined.
“Then, of course, there’s a no landing. Now that’s a situation that I don’t know we’ve ever witnessed in history,” Guatieri mentioned. “Maybe in fantasy land.”
A “no landing” situation is when the economic system continues to develop above regular whereas the unemployment fee stays low, the markets stay tight, and “inflation magically cools and goes back to the two per cent target and stays there.”
“Basically, that refutes everything we’ve learned in economics,” Guatieri mentioned. “You could pretty well toss the economic textbooks away if we do see that situation play out.”
“Now, nothing is impossible. I mean there’s always a possibility of such a happening, but, again, historically it would be very rare.”
From a chance standpoint, Guatieri attaches near zero per cent odds of a no touchdown, which is much beneath the 15 per cent odds he attributes to a typical recession, and the 35 per cent likelihood of a delicate touchdown.
“What we are calling for is something in the middle of a hard and soft landing, and that’s a mild recession,” he mentioned. “I think that’s almost a consensus view as well. [In this scenario], the economy does slip into a recession but it’s very shallow, very short lived, just a couple of quarters. That’s our base case forecast. We have about 50 per cent odds of that situation.”
