The last firework had barely flamed out and the fizz in champagne had just gone flat when the harsh reality of what 2016 might look like set in. Chinese stock markets plunged on the first trading day of the year, and the rest of the globe followed suit. Is this it—the beginning of the next global downturn?
While George Soros might think so, economists in our survey see that kind of pessimism as overblown.
The median probability for a U.S. recession in the next 12 months jumped to 19 percent in this month's Bloomberg survey, the highest since February 2013 and up from three straight months at 15 percent.
When asked in which year a recession will occur, the median of 36 economists said 2018, unchanged from the previous two months.
"Twenty percent is still a fairly low probability but the direction matters," said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities LLC in New York, who increased his recession probability forecast to 20 percent this month from 10 percent in December. "The U.S. economy is doing fairly well but there are still significant risks out there. The most obvious is China."
Concerns about slower growth in China might be weighing on economists' minds, but they don't see the recent market volatility turning into a full-blown crisis. The Chinese economy will account for a 0.1 percentage point drag on U.S. growth this year, according to the median estimate of 32 economists. The magnitude of the impact on core personal consumption expenditures will be the same.
Economists are forecasting U.S. gross domestic product growth of 2.4 percent this year, the same as they estimated for 2015 overall. The Chinese economy will expand 6.5 percent in 2016, according to a December survey of economists. While that's a far cry from the 10.6 percent growth the world's second-biggest economy experienced in 2010, it's no recession.
"The key thing here is that if we do have a hard landing in China, the risk of it taking the U.S. economy down with it is high," Mulraine said.