Update: JP Morgan states 3-in-4 chance of US recession in next three years

As we have previously noted, an increasing number of analysts are suggesting there is a high risk of an upcoming US recession. JP Morgan has warned there is a three-in-four chance of a US recession in the next three years, as the country is becoming increasingly vulnerable, due to an environment of a tight labour market amid weak productivity gains and limited global pricing power signals. Meanwhile, former global macro fund manager, Raoul Pal, announced that he is seeing a US recession starting about now, with a 65% chance of a global recession. 

There’s more talk of a recession.

JPMorgan now becomes the latest entity to warn investors about a possible recession hitting the United States within the next three years, according to a report from the Business Insider.

The financial institution’s strategists write in a note to investors that 2016 will likely see “pockets of stress.” Therefore, the odds of a recession within the next two to three years will have “increased materially.” Other JPMorgan economists project a three-in-four chance of a recession transpiring by the year 2019.

“Our models suggest that U.S. recession risks over a two- to three-year horizon have increased materially as a result of weak supply-side performance. U.S. expansions don’t die of old age, but an environment of tight labor markets amid weak productivity gains and limited global pricing power signals that the expansion is becoming more vulnerable,” the note reads.

What about else where around the world? Strategists expect China to stabilize and grow, while other emerging market economies, like South Africa and Russia, will continue to slow down.

“A significant credit tightening is expected in these EM economies, and risks are high that there will be a disruptive but localized credit event next year,” the strategists wrote. “We downplay the threat that a localized event broadens, partly because the U.S. Fed is likely to remain highly sensitive to global financial market developments and also reflecting our assumptions about the course of policy in China. While our forecast incorporates four U.S. rate hikes next year, the risk that global financial market volatility slows the Fed’s path is high.”

This comes as many others have provided their input on a possible recession (SEE: Citi outlook says 65% chance of U.S. recession in 2016).

With interest rates steadily rising and stock markets having a flat year, 2016 could see a very interesting trend unfold.

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