Fears of a ‘hard landing’ in the global economy are swirling, as central banks hike interest rates to cool inflation.
Although UK growth has held up a little better than expected, the outlook for the world economy is worrying some investors.
Mark Dowding, BlueBay CIO, RBC BlueBay Asset Management. expects growth to “slow to a standstill in the second half of the year”, with the outlook in 2024 also looking downbeat.
Dowding explains: “Interest rates have risen substantially in this cycle and some additional tightening may yet be ahead of us. In light of this, a mild recession remains likely, as a baseline assessment.
In the wake of this, it is understandable that markets will look to price lower rates in 2024, as long as inflation is seen as back under control at this point.”
Pimco, the bond trading giant is preparing for a “harder landing” than other investors, as monetary policy tightening slows economic growth.
Daniel Ivascyn, chief investment officer atPimco, told the Financial Times: “The more tightening that people feel motivated to do, the more uncertainty around these lags and the greater risk to more extreme economic outlooks.”
Central banks have now been raising interest rate for more than a year – but, monetary policy operates with a lag, it take a while to influence the real economy.
Ivascyn says: “We would argue that the market may still be too confident in the quality of central bank decisions and their ability to engineer positive outcomes.
We think the market is a bit too optimistic about central banks’ ability to cut policy rates as quickly as the yield curves are implying.”