“We’re in for a turbulent year or two before we settle down into the new world” stated Shamik Dhar, chief economist at BNY Mellon Investment Management.
Dhar’s statement opened a keynote interview at TradeTech Europe which detailed the global macroeconomic outlook and how the looming recession, rising inflation and tightening monetary policies are impacting global equities markets.
He went on to predict that “sooner or later, a recession is more likely than not.” If it occurs in 2023, it will be the result of credit conditions tightening. If it happens in the next year, it will be because conditions were not tightened enough, he explained. “It’s not looking good for the next 12 to 18 months,” he summarised.
Another speaker noted that Chinese markets are not facing a credit crunch, and are instead experiencing “abundant liquidity”. This will have a beneficial effect on both China and some other parts of the world, he explained, with emerging markets helping to prevent hard lending.
Inflation was cited as a key concern for both speakers, with Dhar commenting that while the U.S. Federal Reserve was initially slow to move on the issue it has now caught up “pretty effectively”. He added that a clear narrative is needed from central banks that they will be “on top of inflation” to reassure market participants.
Reflecting on the current geopolitical climate, Dhar predicted that global power struggles will form the “backdrop” to markets from now on. One panellist noted an increased awareness of the weaponisation of financial assets, a “new, visible risk” that the industry is having to face.
Looking to the future, Dhar predicted that fixed income investments are currently offering returns, and will remain the preferred asset class over the next six to 12 months. When questioned whether there was a positive macroeconomic outlook overall, Dhar reflected upon the currently turbulent economy but predicted a positive outlook in the future for risk assets once the ‘new world’ transition had settled.
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