What: In spite of the seemingly stable situation, Visa does not exclude a recession in Q4 in 2023.

Why it is important:  Impacts on consumption should be limited if this proved right, however this situation would not let room for additional crisis or issues as there would be no buffer to absorb them.

This Visa Business and Economic Insights report from May 2023 indicates a high likelihood of a mild economic recession starting in Q3 of 2023, based on leading indicators and their economic models. The downturn is expected to be initially triggered by a significant decline in business fixed investment (BFI), particularly in equipment purchases and less robust investments in structures and R&D, due to high interest rates and recent banking turmoil. Small businesses, heavily dependent on banks, are expected to face the largest investment reductions.

Consumer spending, impacted by high interest rates, is also projected to decrease; the report notes a shift from credit to debit card usage, indicating consumer caution. The GDP growth rate is anticipated to stay positive in Q2-2023, then decline at a 1.8% CAGR in Q3-2023, remaining largely flat in Q4 before recovery begins in 2024.

There are both upside and downside risks to this outlook. On the upside, the tight job market may prevent outright contraction and consumer spending may prove resilient, thanks to households' substantial excess savings. On the downside, persistent inflation could provoke further rate hikes by the Fed, potentially leading to tighter credit conditions and a deeper recession. A widespread global recession and the U.S. breaching its debt ceiling are also potential risks, both of which could significantly hamper U.S. economic growth.

Despite mixed signals, a mild recession in the US is still likely