Goldman Sachs Global Economics Analyst Exhibit 3: We Think That a US Recession in the Next 12 Months Is Less Likely Than Most Other Forecasters Percent Estimated US Recession Probability (Next 12 Months), Percent 100 WallStreet Journal October 2022 Forecaster Survey 100 90 GS Forecast: 35% 90 80 80 70 Consensus Median Forecast: 65% 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 01020304050 Number of Forecasters Source: The Wall Street Journal, Goldman Sachs Global Investment Research Why is our recession probability—while more than twice as high as the unconditional probability of entering recession in any given 12-month period—still clearly below 50%? One immediate reason is that the incoming activity data are nowhere close to recessionary. The advance GDP report showed 2.6% (annualized) growth in Q3, nonfarm payrolls grew 261k in October, and there were 225k initial jobless claims in the week of November 5. More fundamentally, there are strong reasons to expect positive growth in coming quarters. To be sure, the tightening in financial conditions is weighing heavily on growth, to the tune of nearly 2pp at present. But real disposable personal income is rebounding from the plunge seen in H1—when fiscal tightening and sharply higher inflation took their toll—to a pace of 3%+over the next year (Exhibit 4). And while there are risks on both sides, we think the real income upturn is likely to be the stronger force as we move through 2023, especially because the financial conditions drag will likely diminish assuming Fed officials do not deliver dramatically more tightening than the rates market is currently pricing. 16 November 2022 4