Should investors consider a global recession avoided or delayed?
July 01, 2023
In September 2022, we identified an increased probability the global economy would experience a recession over the following 12 months. This became our baseline and most likely scenario. Since then, the recession has not materialized. Equity markets took this as a sign a soft landing was underway, and they rebounded strongly from late-2022 lows.
Has a global recession been avoided, or has it just been delayed? Our baseline scenario still calls for a global recession. Although inflation is slowing, it’s still uncomfortably high. For any credible inflation-fighting central bank, this means policy tightening campaigns are not over. It also means the monetary policy stance will have to stay in restrictive territory for a while longer to completely wash out inflationary imbalances.
Asset class highlights
Equity: Although some specific segments of the market might be stretched, this is not necessarily the case for the overall market. Europe is now in a technical recession. Canada’s valuation is more attractive, but it’s a cyclical market dependent on the US economy. In addition, some regions appear more attractive than others, such as emerging markets outside China.
Fixed Income: Global bonds are likely to offer positive returns over the next 12 months. The yield of 10-year treasuries should trade in a range of 3.00% to 4.25%, around a pivot of 3.50%.
Currencies: We’re in the late stages of the global tightening cycle. In this stage, the risk of a financial system shock is relatively higher than normal. FX volatility is expected to increase considerably over the second half of the year.
China: Although underlying economic growth in China is expected to remain weak, additional policy stimulus is likely to limit downside risks. We expect GDP growth to average approximately 5% in the next four quarters. This projection is in line with the consensus but also embeds total policy support of about 1%-1.5% of GDP.
The views expressed in this document are the views of CIBC Asset Management Inc. and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This document is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with their advisor. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated, and are subject to change.
Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.
Bloomberg®” is a service mark of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by CIBC Asset Management Inc. Bloomberg is not affiliated with CIBC Asset Management Inc., and Bloomberg does not approve, endorse, review, or recommend any CIBC Asset Management Inc. products.
The MSCI information may only be used for your internal use, may not be reproduced or re-disseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.
CIBC Asset Management and the CIBC logo are trademarks of Canadian Imperial Bank of Commerce (CIBC), used under license.
The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.