Economist Predicts Recession in 2024
Steven Chiavarone, CFA and economist with Federated Hermes, presented at our annual State of M&A conference held in Green Bay. Chiavarone spoke to the conflict and other economic indicators likely to affect mergers and acquisitions in the years ahead. Specifically, he addressed inflation and the risk of recession.
With inflation comes rate hikes. Morgan Stanley predicts the Fed will raise interest rates six times in 2022. As Chiavarone pointed out, there have been 11 rate hike cycles since 1970 of three increases or more. Of those, nine were followed by a recession. (The other two were followed by a stock market crash and the Mexican peso crisis.) His prediction is that we could see a recession in the backend of 2024, or sooner if rate hikes accelerate.
Interestingly, Brian Beaulieu, the economist who spoke at our 2021 conference, predicted a recession in 2026. Beaulieu, who is CEO of ITR Economics, spoke about the risk of inflation as supply chains got shorter, and he warned that taxes would get particularly onerous around 2025.
It’s possible that current conditions have simply accelerated a slowdown that was already coming. Either way, we know what happens in a recession – people pull back on spending. Businesses tied to discretionary consumer purchases and those tied to business capital expenditures will feel the biggest pinch.
Meanwhile, inflation increases the cost of an acquisition, and that can discourage buyers. Inflation also shrinks the future value of business revenue – another factor buyers use when determining purchase offers.
As I write this, both the financial markets and the M&A market remained resilient. But geopolitical events move much faster than editorial calendars. Economic conditions can shift rapidly, and your business value can drop overnight through absolutely no fault of your own.
Last year, Beaulieu told business owners to sell in 2024 or 2025 “at the latest” to avoid a recession. This year, Chiavarone told attendees, “If you are a seller, sell.”
By Scott Bushkie
With more than 20 years in the Mergers and Acquisitions (M&A) industry, Scott is a recognized leader in the field, providing exit strategies, business valuations, and M&A advisory services to business owners in the lower middle market. He has successfully executed sales to domestic and international buyers, private equity firms, family offices, and strategic buyers. Follow DealCoach on Linkedin