Fannie Mae's Economic and Strategic Research Group forecast stronger US gross domestic product growth in the first quarter due to an upward revision in recent consumer spending data. However, the organization expects a modest recession beginning in the second half of the year.

According to the ESR Group’s latest monthly commentary, while the panic following bank failures in March has subsided, the additional incremental tightening in credit conditions owing to the financial fallout will contribute to the recession.

“The economic slowdown has resumed — whether the end result is a modest recession or simply a soft landing remains unanswered — although we continue to expect the former, as we have since April of last year when we first made our 2023 recession call,” said Doug Duncan, senior VP and chief economist at Fannie Mae.

Duncan noted that while it would be premature to expect no further difficulties in the banking sector other than credit tightening, expectations of a modest recession remain.

“We see signs of a weakening employment market, slowing retail sales and declining manufacturing activity. However, the rapid response of hopeful homeowners to periodic declines in mortgage rates, even from the currently higher rates, gives us additional confidence in our use of the word ‘modest,’” Duncan said.