HSBC forecasts a recession in the US in the fourth quarter of 2023, followed by a recession in Europe in early 2024
Joseph Little, one of the wealth managers at the British banking giant, said: We are experiencing a slight downturn in profits and corporate defaults are rising steadily.
We are assured that high inflation will subside relatively quickly, giving policymakers the opportunity to cut rates.
However, despite statements from central bank officials and obvious pressure on inflation, HSBC Asset Management expects the Fed to cut rates by the end of 2023, with the ECB and Bank of England following suit in 2024.
The Fed is pausing monetary tightening and keeping its target range for the federal funds rate at 5% to 5.25%, but is signaling that two more rate hikes are possible this year.
It is therefore important that a recession does not “come too early” so that it does not become deflationary. He added: “The scenario for the coming recession will be more similar to the recession of the early 1990s, and our main scenario is a decline in GDP of 1-2%.
HSBC believes that a recession in Western economies will have negative effects on global markets for two reasons:
First , financial conditions are rapidly tightening, which causes the credit cycle to slow and businesses begin to experience a shortage of funds.
Secondly , market participants are not yet fully aware of the seriousness of the current situation and are not taking measures to prevent the consequences of the recession:
He argues that this recession will not be sufficient to remove all inflation pressures from the system, so advanced economies face a situation where inflation and interest rates gradually rise.
The level of interaction with interest rates is very attractive, especially against the backdrop of the Central Bank's financial curve.
"From a lending perspective, we select and focus on high-quality investment loans rather than speculative investment loans. We are taking a greater interest in emerging market equities," added Joseph Little.