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There’s a 70 percent chance of global recession in the next 12 months as central banks unleash more pain in the form of higher interest rates to combat inflation, now skirting close to double digits in much of the developed world.
“The (US Federal Reserve) is going to have to pull its levers very hard to rein in inflation,” said Peter Vincent, head of client investment solutions for Europe, Middle East and Africa at Franklin Templeton Investments. He was speaking at the Morningstar Investment Conference in Cape Town, last Wednesday.
This is in line with a Bloomberg Economics projection earlier this month that rated the prospects of a recession a near certainty over the next 12 months.
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Central banks are aggressively hiking interest rates to rein in inflation, and at least two more 50 basis point rate increases are priced into the financial markets before there will be any softening, said Vincent.
Even Japan, where inflation has long been tamed, is starting to see headline inflation at historically high levels.
Influencing factors
Among the factors weighing on the high likelihood of recession are slowing growth prospects in China. The Chinese government’s zero tolerance to Covid, accompanied by rolling lockdowns across entire cities, has created considerable headwinds for the economy.
China doesn’t have the flexibility to respond to a slowing economy, raising the spectre of over-stimulation and widespread default.
“Inflation has evolved into the service sector, but there are signs of it peaking,” added Vincent. “Higher interest rates are showing signs of working. The bargaining power of labour will be key to taming inflation.”— Moneyweb
Online Reporter