Goldman Sachs CEO Says There's a 'Good Chance' of a 2023 Recession

The top investment banker says it's time to be cautious.

Hardly a day goes by without another prominent figure warning of an impending recession. Today it was the turn of Goldman Sachs CEO David Solomon to step up and ring the economic alarm bell. Solomon told CNBC that, while a recession isn't a certainty, we could well be heading for a downturn.

The investment bank boss said that the world has changed and businesses are adapting to the new status quo. It isn't clear what will happen, but he thinks there's a strong possibility of economic decline. "On the distribution of outcomes, there's a good chance that we have a recession in the United States," he said.

Goldman Sachs CEO says it is time to be cautious

"I think it's time to be cautious," Solomon said. He added, "If you look at what most economists are predicting, they're predicting slow to no growth in the U.S. They're predicting negative growth across other developed economies in Europe. And so that environment heading into 2023 is one that you have to be cautious and prepared for."

For consumers and investors, being cautious can take different forms. Many investors have already seen the value of their portfolios fall in recent months, and are braced for further drops. As a long-term investor, the important thing is to position yourself so you won't need to sell your brokerage positions at a loss if the market falls further. Historically, the stock market has always recovered eventually, so it's about ensuring you're able to wait out the storm.

As a consumer, being cautious may involve building up a bigger emergency fund and not taking on high-interest debt. So far, the Fed hasn't managed to get inflation under control, which means we may see further interest rate hikes to stem the rises in the cost of living. A recession could also cause widespread job losses. When faced with a potential double whammy of price hikes and layoffs, it's all the more important to have a financial cushion on hand in an accessible savings account.

Ways to protect yourself against economic uncertainty

It's all too easy to read headlines about recession and think the sky is falling. If worrying about an economic slump next year is already keeping you awake at night, try zooming out. The knowledge that recessions are part of a cycle and even severe slumps will eventually pass might help. We've already had three recessions in the past couple of decades, and each time the economy has recovered.

Another way to keep those middle-of-the night worries at bay is to focus on what you can do right now to prepare. We've already touched on the importance of investing for the long term and building an emergency fund. Here are some other concrete actions you can take to recession-proof your finances:

• Maintain your credit rating: If the economy tightens, borrowing money could get more difficult, making it more important to have strong credit. Common ways to boost your score are to pay all your bills on time, pay down debt to improve your credit utilization ratio, and ensure there are no errors on your credit report. If you're already struggling to pay bills, talk to your creditors to see if there's a way to keep any black marks for non-payment off your record.
• Consider a side hustle: There are two benefits of having an extra income stream during an economic downturn. One is that you'll have extra money in the bank that could help you build your emergency savings or pay down debt. Another is that if you do lose your job, you'll still have some money coming in. However, there's also a caveat: Don't neglect your main job in favor of your side hustle. It would be counterproductive to get sacked because of your efforts to diversify your income stream.
• Live within your means: Ensuring you spend less than you earn is good practice whether or not there's an economic storm on the horizon. Work out where your money is going, and look for areas you can cut back. Try to aggressively focus on what you need over what you want, even if it means adopting a more frugal mindset.

David Solomon says that a recession is not inevitable. Even so, rather than worrying about the gathering economic clouds, perhaps you can see them as an opportunity to build stronger financial foundations. If you can adopt different financial habits now, you'll be better positioned to not only survive a recession but also go on to build wealth and financial security for the future.