In a comprehensive assessment of the world economy, HSBC Asset Management has issued a dire warning of an impending global recession. The United States is expected to face economic headwinds later this year, while Europe is projected to grapple with its own economic contraction in 2024.
HSBC Asset Management’s mid-year economic outlook presents a bleak forecast for the coming months, as many economies witness warning signs of a recession. The firm raises concerns about the misalignment between fiscal and monetary policies and the equity and bond markets, posing potential risks for investors and policymakers.
Joseph Little, the Global Chief Strategist of HSBC Asset Management, acknowledges that specific sectors of the economy have shown resilience. However, he emphasizes that the delicate balance of risks indicates a high recession probability. Little highlights that Europe shares worrisome macroeconomic trajectories while trailing behind the United States regarding economic performance. He notes that Europe is already experiencing a mild profit recession, accompanied by a gradual rise in corporate defaults. Little suggests that the anticipated moderation of high inflation could allow policymakers to cut rates.
Despite the efforts of central banks and persistent inflation in key areas, HSBC Asset Management predicts that the U.S. Federal Reserve will reduce interest rates before the end of 2023. They expect the European Central Bank and the Bank of England to follow suit in the subsequent year. Little warns that if the recession arrives prematurely, central banks may struggle to lower rates amid soaring inflation. Drawing a comparison to the early 1990s, HSBC’s central forecast estimates a 1-2% contraction in GDP.
Furthermore, HSBC Asset Management remains cautious about portfolio risk and cyclicality, favoring interest rate exposure and seeing value in European bonds. However, there are bright spots in the global economy. HSBC is optimistic about China’s recovery from the COVID-19 pandemic, citing high domestic savings, a rebounding property sector, and government initiatives bolstering domestic demand. In India, a resurgent economy driven by consumer spending and a thriving services sector has positioned the country as the “main macro growth story in 2023,” according to Little.
Additionally, HSBC recently introduced its cryptocurrency services, enabling clients to engage in the buying and selling of Bitcoin and Ethereum ETFs listed on the Hong Kong exchange.
As HSBC Asset Management alarms the global economy, investors and policymakers must brace for a potential global recession while cautiously navigating opportunities presented by certain regions and emerging technologies.