International risks pose a more immediate threat to the U.S. economy than domestic risks, according to a report from economist Travis J. Berge, and researchers Oscar Jordia and Early Elias of the San Francisco Fed Reserve.
They say there’s a one in three chance of U.S. recession in the next 12 months, with recession odds based on international factors peaking at about 45% by the end of this year, only to fall soon after. International risks from earlier this year include supply chain disruptions to the U.S. automobile industry because of the Japanese earthquake and tsunami. Ongoing risks largely stem from Europe’s financial system, especially after IMF head Christine Lagarde said European banks are in urgent need of capital.
Domestic risks to U.S. recession are fairly contained over the next few months but will increase to about 30% in second half of 2012.
When combined together, international and domestic risks raise the odds of a recession in early 2012 to over 50%. Berge, Jordia and Elias warn that while international risks can’t be measured as precisely as homegrown risks, the U.S. economy is fragile.
“Prudence suggests that the fragile state of the U.S. economy would not easily withstand turbulence coming across the Atlantic. A European sovereign debt default may well sink the United States back into recession. However, if we navigate the storm through the second half of 2012, it appears that danger will recede rapidly in 2013.”
Now here’s a chart from the San Francisco Fed Reserve that forecasts the probability of a recession: