The US economy will crash as a result of the banking crisis, which will cause a financial collapse
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- According to Allianz, the ongoing banking crisis could lead to a credit crunch and a financial slump.
The US economy will enter a recession in the second half of 2023, According to Allianz.
The German health coverage management conglomerate predicted a 1% drop in US output between mid-2023 and the end of the year.
According to Allianz, the downturn will be fueled by “rapidly tightening credit conditions, aggravated by the banking crisis.”
Allianz has warned that the turmoil in the geographic banking sector will cause a credit crunch, causing the US economy to falter in the second half of this year.
Allianz Report : United States “On the Verge of a Crash Landing”
In a report released this week, the German insurance-to-asset management conglomerate stated that the United States is “on the verge of a crash landing,” referring to a scenario in which the Federal Reserve’s financial going to tighten and banks’ enhanced wariness toward lending pressure taken into account when calculating and set the stage for a recession.
“We expect economic momentum to degrade during the second half of the year as a result of rapidly toughening credit conditions, exacerbated by the banking crisis,” wrote a team led by Allianz’s chief economist Ludovic Subran in a note.
- The strategists also stated that they are “penciling in a recession,” with the US economy contracting by 1% between the middle and end of this year.
Allianz Warns of Impending Financial Collapse in United States Following Recent Bank Failures.
Allianz anticipates that the recent turmoil in the United States regional banks will fuel a financial collapse.
Silicon Valley Bank declared bankruptcy earlier this month after disclosing massive losses on its bond holdings, prompting clients such as Peter Thiel’s Founders Fund to withdraw their deposit accounts. This month also saw the demise of two other US lenders, Signature Bank, and Silvergate Capital.
This has sent shockwaves through the banking markets, dragging down the stock prices of other provincial lenders such as First Republic and Western Alliance.
According to Allianz, the turmoil may cause banks to become more risk-averse, resulting in a pullback in lending. When financial firms are less willing to lend, Americans find it more difficult to obtain credit, which leads to a drop in investment and spending, thereby weighing on the nation’s overall economic health.
Subran’s team noted that a sharp drop in deposit accounts had wiped $472 billion off the total money supply in the United States over the previous year, which they said “spells doom” for public finances.
“Banks have been reducing credit supply to the private sector, and poor self-esteem in the financial sector will likely make them much more conservative,” the strategists predicted.
“This is a one-of-a-kind event in postwar history,” they added. “While consumer spending has held up, a dramatic decrease in bank lending appears unavoidable as monetary aggregates collapse.”
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