The US economy is predicted to enter a recession in the fourth quarter of 2023, according to HSBC Asset Management. Additionally, HSBC warns that Western European countries may face a downturn as early as next year. The bank’s midyear outlook reveals that caution flags are raised for many economies as stock and bond markets are not aligned with fiscal and monetary policies.
While certain parts of the economy remain resilient, the balance of risks indicates a high risk of recession. Europe is trailing behind the US, but the macro trajectory is generally aligned. Joseph Little, the bank’s global chief strategist, stated, “Our central scenario is for a recession in western economies and a difficult, choppy outlook for markets.” He outlined two reasons behind this outlook: the rapid tightening of financial conditions that has led to a downturn in the credit cycle, and the fact that markets are not pricing a particularly pessimistic view of the world.
This warning comes shortly after the Bank of England (BoE) raised rates to 5%, the highest level in 15 years, due to persistent inflation eroding the British economy. Similarly, the US Federal Reserve announced a hike in its key interest rate to 5.25%, the highest since 2007. The European Central Bank (ECB) also increased the Eurozone’s key rate to 3.75% to combat inflation.
Despite the hawkish stance taken by Western regulators, HSBC Asset Management expects the US Fed to reduce rates before the end of the year, with the ECB and BoE following suit next year. Little believes that the impending recession will not be significant enough to eliminate all inflation pressures from the system. As a result, he predicts a regime of somewhat higher inflation and interest rates over time.
The global economic landscape is becoming increasingly volatile, and these warnings highlight the looming threat of recession in major economies. It is essential for policymakers to carefully assess and address the risks associated with economic downturns. Failure to do so could have detrimental effects on global markets and further exacerbate the challenges faced by businesses and individuals.
In conclusion, HSBC’s warning about a potential recession in the US by the end of 2023, followed by a downturn in Western European countries, underscores the need for proactive measures to mitigate economic risks. The tightening of financial conditions and market misalignment with the world’s outlook serve as key indicators of the impending challenges. Policymakers should closely monitor these developments and take appropriate steps to safeguard their economies.