This is mostly driven by Schroders' higher inflation forecast (8 per cent for the year vs. 6.9 per cent previously) and also a more aggressive path for the fed funds rate.
Schroders expects rates in the US to reach 4 per cent by the start of 2023, compared to market expectations of 3.65 per cent.
"Higher interest rates, less generous government spending and higher inflation all work to reduce the spending power of households, which are expected to eventually cut spending meaningfully," said Zangana.
"Companies are likely to respond to weaker demand by slowing production, and as such, also reducing demand for labour.
"Policy tightening is expected to be severe enough to drive the unemployment rate higher, which is required to see not only household demand fall, but also inflation pressures ease."
Schroders expects the US economy to slip into recession over the first three quarters of 2023, with economic output set to contract by 1.9 per cent, before returning to growth.
The fall in output would see the country’s economy contract by 1.1 per cent for all of 2023, compared to consensus estimates of positive growth of 1 per cent.
Unlike the US, Europe’s recession is not going to be caused by domestically-generated inflation and rising interest rates. Instead, spiralling energy costs related to the war in Ukraine are now severe enough to cause a dip in output, said Zangana.
In comparison to the US and eurozone, the UK seems to sit somewhere between the two, he added.
"Economic growth has been more resilient of late, and there is more evidence of inflation pressures broadening out.
"However, the UK is also forced to endure high European energy prices, which are going to hit households with a lag due to the government’s energy price cap."
carmen.reichman@ft.com
