Why a debt-fueled US economy is facing a hard landing in 2025, chief economist says

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The US economy will stay afloat through the next few quarters, but growth drivers could turn into headwinds as soon as next year, Torsten Slok said.

According to the Apollo chief economist, that’s because current strength stems from high debt loads, both among US consumers and the corporate world. Eventually, those trends will start to falter, triggering a hard landing in 2025.

Slok pointed out that delinquencies are rising on credit cards and auto loans, despite an economy with low unemployment. Meanwhile, economic momentum hasn’t done away with highly-levered firms, which extend across industries.

“That tells you once people do begin to lose their jobs, once the economy does begin to slow down, you already have a lot of distress,” he told Bloomberg TV. “Imagine what the process would look like if you finally get the unemployment to move higher.”

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Slok also pointed to commercial real estate, a sector that’s been the source of widespread fears amid higher interest rates. These hikes have caused borrowing costs to rocket for the industry, and many fear a tsunami of debt defaults if rates don’t come down soon. 

Office properties have been a particular sore spot, impacted heavily by remote work and faced with declining values. In April, office loans made up 54% of new 60+ delinquency volumes, Fitch Ratings reported last week. 

For his part, Slok expects the Federal Reserve to deliver no rate cuts this year, citing that it would require a dramatic slowdown for the central bank to meet its 2% inflation mandate anytime soon. 

But while that keeps a hard landing on the table, the next few quarters will still deliver solid performance, he said.

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“We still have behind us a very strong tailwind. That comes from easy financial conditions,” he said, adding: “And on top of that we also have a tailwind from fiscal spending. We still have strong spending in the pipeline from the Chips Act, Inflation Reduction Act, the Infrastructure Act.” 

Looking into 2025, others have also cited caution, citing deteriorating labor-market conditions as proof of a looming recession