"The Big Short" predicts that the U.S. will face a "major recession" next year

Economist David Rosenberg warns that the two major engines supporting the U.S. economy are simultaneously stalling, and a severe recession may arrive by 2027.

On March 10, Business Insider reported that Wall Street's well-known bear, David Rosenberg, president of Rosenberg Research, recently stated that as the effects of fiscal stimulus fade and AI-related capital expenditures peak, the U.S. economy could fall into a "very severe recession" by 2027.

He pointed out that after receiving tax refunds this year, American consumers may have a "lifeline" of two to three months, but will face more severe tests thereafter.

Rosenberg also warned that if the stock market experiences a significant correction and the wealth effect is damaged, consumer spending will further shrink, potentially triggering a recession. Meanwhile, the market turmoil caused by the Iran war has prompted Wall Street to reintroduce discussions of recession risks and stagflation expectations.

Two Pillars Shaking Simultaneously

Rosenberg believes that the reason the U.S. economy has been able to withstand recession pressures in recent years primarily relies on two forces: massive fiscal stimulus and the AI investment boom.

On the fiscal side, the "Great Beautiful Act" signed by Trump extended the 2017 tax cuts and introduced a series of stimulus measures. According to estimates by the Tax Foundation, this act could boost GDP growth by 1.2 percentage points in the long run.

However, Rosenberg believes this benefit will face risks after the midterm elections in November this year—he predicts that the Democrats may regain control of Congress, leading to legislative gridlock, and fiscal stimulus in 2027 may be "impossible to realize."

On the AI investment side, Rosenberg pointed out that the capital expenditure boom among tech giants is expected to peak at some point in 2026.

According to Business Insider's analysis of company announcements, the total investment in AI-related capital expenditures by four core AI companies—Amazon, Google, Meta, and Microsoft—is expected to approach $600 billion this year. Rosenberg estimates that if the wealth effect from the rise in tech stocks is taken into account, AI capital expenditures have contributed about 90% to economic growth in recent years.

"Next year, we will simultaneously remove both crutches, so enjoy while the capital expenditure boom lasts."

Economic Fundamentals Show Cracks

As the two supporting forces begin to fade, the resilience of the U.S. economy itself is also weakening.

Data from the U.S. Bureau of Economic Analysis shows that the annualized growth rate of real GDP in the fourth quarter was only 1.4%, a significant slowdown from the previous quarter's 4.4% growth rate. The job market is also under pressure, with hiring noticeably cooling and layoffs increasing over the past year.

The pressure on the consumer side cannot be ignored either. The personal savings rate, a key indicator of consumer financial health, fell to 3.6% at the end of last year, down 150 basis points from early 2025 "No job growth means no income growth," Rosenberg said. "Imagine what would happen if people were forced to tighten their belts and consume based on real income."

Stock Market Correction May Trigger Recession

Rosenberg specifically pointed out the key role of stock market risk in the logic of this recession.

He stated that if the stock market experiences a substantial correction, the wealth effect will weaken, thereby suppressing consumer spending and creating a self-reinforcing cycle of economic decline, ultimately sufficient to trigger a recession.

"Corporate spending will face a vacuum," he said, "we may face a very severe recession in 2027."

This warning is not an isolated voice. The market volatility triggered by the Iran war has prompted some on Wall Street to reintroduce recession warnings and stagflation risks into their outlook.

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