The ongoing Israel-Iran conflict may further increase the risk of a U.S. recession.

Reuters Finance APP News — According to Reuters Finance APP reports, due to the ongoing conflict between the US, Israel, and Iran, the US economy is under additional downward pressure. Several financial institutions have recently significantly raised the probability of a recession within the next 12 months. This adjustment is mainly driven by the rapid rise in international oil prices caused by the conflict, as well as the resulting inflation expectations and deteriorating growth outlook. In normal years, this probability benchmark usually remains around 20%, but the current level has entered a high alert zone, indicating that geopolitical factors are becoming the dominant risk variable.

Moody’s latest model shows that the probability of a US recession has risen to 48.6%, reaching a recent high. Chief economist Mark Zandi recently stated clearly: “Worryingly, the recession risk is high enough to be uncomfortable and continues to increase. A recession is a real threat. If current high oil prices persist into late May through the end of Q2, the US economy will fall into recession.” His statement is based on AI-driven economic simulations, emphasizing that the rapid transmission of oil price shocks far exceeds market expectations.

To visually compare the views of various institutions, the following table presents the latest forecast data:

These figures indicate that recession has shifted from a “low-probability event” to a “real threat.” While Goldman Sachs still considers recession as a non-base scenario, it has lowered its full-year GDP growth forecast and warned that sustained high oil prices will significantly suppress consumption and investment. Historical experience shows that almost all recessions are accompanied by a surge in oil prices. If the current conflict cannot be quickly eased, Q2 will be a critical observation window.

Further analysis shows that the transmission chain of rising oil prices is clear and intense: first, directly increasing costs for gasoline, transportation, and manufacturing, then suppressing disposable income and corporate profits; secondly, possibly forcing the Federal Reserve to adopt a more cautious approach to rate cuts, creating concerns about stagflation; finally, amplifying effects in financial markets, leading to increased stock market volatility and a steepening of the yield curve. The job market has already shown cracks recently; if consumer spending further slows, rising unemployment will create a vicious cycle.

On a global level, fluctuations in energy prices will also impact supply chain stability through commodity channels, bringing input cost pressures to major economies such as Asian countries. Investors should closely monitor oil price trends, US Q2 economic data, and conflict developments, as these variables will directly determine the final realization of probability forecasts.

Editor’s Summary

Latest models from multiple financial institutions consistently indicate that the US economy faces significantly increased downside risks driven by geopolitics, with recession probabilities far exceeding normal levels. Oil prices remain a core variable; the final outcome depends on the pace of conflict de-escalation and monetary policy flexibility. Markets should stay highly alert to potential volatility.

(Edited by: Wang Zhiqiang HF013)

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