Every macroeconomic impact has at least three implicit dimensions. According to Simona Mocuta, Chief Economist at State Street Global Advisors, there are three implicit dimensions to the macro impact of the ongoing crisis: directionality, timing and magnitude.

As far as the directionality of the current crisis is concerned, lower growth and further disinflation cannot be ruled out. “In the aftermath of a crisis, risk management across the banking system—and even outside of it—tightens. Consequently, credit standards become stricter and credit gets harder and more expensive to obtain. That, in turn, reduces demand for credit insofar as not all previously viable projects continue to remain so. Eventually, capital deployment and labor demand slow, growth decelerates, inflation softens and unemployment rises,” Mocuta says.

Timing, which is more difficult to assess, could be fairly rapid but not immediate. SSGA expects a time frame of several months. “Given robust household finances and an extremely strong starting point for the labor market, it might take until the third quarter before noticeable deterioration in aggregate employment numbers become visible,” Mocuta explains. “Since labor income is holding up and real wages are improving, consumer spending could similarly prove resilient for a few more months before evidence of momentum loss broadens. However, signs of stress in parts of the credit space could become apparent well before that,” she adds.

Magnitude is quite hard to get right, but in our assessment the annual GDP growth should be off by at least a few tenths of a percent. “We think the biggest impact from the banking turmoil would be felt only later this year and mostly in 2024, when we no longer anticipate any improvement in growth performance. Our newly released forecasts now project annual growth of just 0.7% in 2024, down from 1.5% previously,” Mocuta states.