Citi analysts have devised three scenarios to forecast possible outcomes as the world faces an exceedingly complex set of challenges. Currently, Citi’s base case is resilient at a 40% probability, with each robust and recession at 25% probabilities.

Robust, resilient, recession

“The RESILIENT scenario expects Fed tightening policy will constrain growth in the US and world economy this year. This will be neutralized to some degree by growth generated from lean inventories and recovering production. In this scenario, strong corporate profits will shift to sectors with ‘durable demand’.” 

“The ROBUST scenario assumes there is greater risk in Europe's markets than in the US, and that the conflict in Ukraine and Russian economic sanctions do not expand further. A compromise between Ukraine, Russia, and NATO would bring commodity prices down and might diminish the Fed's urgency to tighten policy.” 

“In the RECESSION scenario, the Fed would tighten too fast for growth in supply to meet decelerating demand, resulting in recession in 2023 with a sharp drop in US share prices. The forecasted path for US Treasury 2-year notes – coupled with expectations of reduced Fed lending – suggests a growing recession risk in 2023.”