The influential financial firm Moody's Analytics has raised recession concerns, with its AI-based economic model now estimating a 49% probability of a US recession within the next 12 months—a figure likely to exceed 50% if the Iran war drives oil prices higher. The company notes this is the highest recession probability recorded in years, backed by a strong historical track record.
Mark Zandi, Moody's Analytics chief economist, attributed the recent spike primarily to weak labor market numbers. The model's sensitivity to energy costs reflects a consistent pattern: every US recession since World War II, except the COVID-19 downturn, was preceded by an oil price surge.
Despite the US now producing roughly as much crude oil as it consumes, higher oil prices still pose significant risks. "Higher oil prices hurt US consumers much harder and cause them to turn more cautious in their spending much faster than it convinces US oil producers to increase investment and production," Zandi explained.
Recent analysis suggests markets may be underestimating the Iran war's potential to disrupt global energy markets and damage the global economy, particularly if the conflict persists.
As the Iran conflict continues without resolution, the Strait of Hormuz remains closed, disrupting the flow of approximately one-fifth of the world's oil supply. US crude oil prices have climbed to US$94 per barrel.
With both the US and global economies facing growing uncertainty, many are wondering how a potential recession could affect their lives. Keep reading to learn how a recession might affect you and what steps you can take to prepare for the future.