The case for modest recessions - Investment Clock economic update

The outlook has improved somewhat for 2023, but I still expect modest recessions in major economies driven by monetary policy tightening; households struggling with the cost of living; and firms holding back on investment in the wake of higher interest rates and costs.

Lower inflation, savings stocks and central bank pauses all help stave off worse recessions in the central case. Risk scenarios centre on different paths for inflation and rates. The US and euro area ended 2022 looking more robust than expected and some economies, including the US, may yet escape recession with inflation already substantially lower. China’s recovery could be a complicating factor for the global inflation picture though and Europe’s energy struggles may well recur.

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The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.