It was about this time last year that we expressed the view that US and global recession were likely to start within the next 12 months. Yet no recession has arrived. In this video, our co-CIO Ed Smith explains why we haven’t changed our cautious outlook and positioning.
Recession signals not yet past sell-by date
As we planned for different scenarios (which is what portfolio management is all about) we acknowledged the possibility of a so-called soft landing (or immaculate disinflation), whereby inflation falls but growth doesn’t tumble, but it wasn’t our base case. We believed that inflation would return to the normal range by the end of 2023 – a forecast that looks to be accurate outside of the UK, where we have long flagged the biggest risks – but that a cyclical downturn was a likely corollary.
As Ed explains in this video, the signals that we look at to help us forecast whether we are likely to enter recession or not operate with long and variable lags. And while it may seem like we’ve been banging on about this recession for ages, there are no recession signals that are yet past their “sell-by” dates, past which we could say for sure that “it’s different this time”. Instead, we are well within the past windows between a warning signal and the start of a recession.
To help explain what’s kept the global economy relatively resilient for longer than we expected and to summarise where we might go from here, we’ve produced a SWOT analysis – strengths and weaknesses of the global economy, and the opportunities and threats it faces in the months ahead.