The US will enter recession in the coming 3 years, insurers managing $13 trillion say: Goldman Sachs survey

• Over 60% of leading insurers expect the US to go into recession by 2025, a Goldman Sachs survey found.
• Most of the insurers, managing $13 trillion in assets, saw inflation as a concern in the next year.

Insurers with $13 trillion under management believe the US will enter a recession by 2025, a survey by Goldman Sachs has found.

Many investors have been concerned the Federal Reserve's aggressive plan for interest-rate hikes in 2022 could dampen the US economy and slow down growth.

In the poll, 63% of insurance company CIOs and CFOs worldwide said they expect an economic downturn in the US within two to three years.

"While few respondents anticipate an immediate recession coming out of the post-pandemic growth cycle, there has been a clear shift in outlook globally," Goldman Sachs Asset Management said in its survey report.

The investment officers — who manage about half the assets in the global industry — pointed to concerns about market volatility and inflation. Almost 30% view inflation as the biggest risk to their investment portfolios, while nearly 80% think it will be a global concern in the next year.

Inflation in the US is running at 40-year highs, as pent-up demand met supply constraints from the pandemic. The survey was conducted before the start of the Russian war on Ukraine, which has brought fears that supply problems will push up prices.

Most respondents thought the period of heightened inflation risk would persist, with 74% saying it would last for two to five years in the US.

"Higher vaccination rates have eased worries about the pandemic, but rising inflation and the effect on monetary policy are now top of mind," the report said.

"As the easy monetary policies of the pandemic-era are unwound, expected rate hikes are top of mind."

The Fed in March hiked rates for the first time since 2018 to help tame red-hot inflation, and the market expects at least another six increases, possibly of 50 basis points. But many analysts doubt the central bank's ability to deal with inflation effectively.

"Following two years of synchronized dovish policy, 2022 will likely mark a pivotal year in developed market policy normalization," Jan Hatzius, global head of investment research at Goldman Sachs, said in the report.

"We expect the Fed to raise rates multiple times this year, and the timeline between rate liftoff and balance sheet runoff to be compressed relative to last policy normalization," he added.

Uncertainty around the central bank's intentions has unsettled markets, prompting some bumpy movements in stock prices. It has said it will reduce its balance sheet significantly and cut down on its asset holdings, worth trillions of dollars, but it has been unclear on its exact plans.

In the survey, 87% of insurers said they believe the Fed will raise interest rates at least three times in 2022, while last year's poll found the majority didn't anticipate any hikes. They mentioned market volatility and the Fed's plan to tighten monetary policy as major concerns.

The investment officers were more optimistic about investment opportunities in 2022, and most expect to see moderate positive returns for the S&P 500 by year's end. But around one-third think the S&P 500 will deliver a negative return, because of increased worries around market volatility.

"As political and financial policy uncertainty raise concerns around credit and equity volatility, investor demand remains high for yield-enhancing strategies across the risk curve in fixed income, equities, and private assets," Goldman Sachs said.

"On the whole, global insurers plan to maintain a risk-on investment approach, with increased allocations to private equity, green bonds, and middle market corporate loans."

Goldman Sachs canvassed 328 CIOs and CFOs at insurance companies for the 2022 edition of its annual survey.