Research Briefing | Jan 19, 2023

Recession watch – reasons to be cheerful

Though our baseline forecast this year is a shallow global recession in the first half of the year the uncertainty around the forecast is higher than usual. In fact, the risks seem skewed to the upside and an increasing number of nuggets offer hope that the global recession will be shallow and short – or even avoided altogether.

What you will learn:

  • Interest rates on both corporate and household credit have largely turned lower since October and November in both the US and Europe. That commercial rates would move ahead of policy shifts is not unheard of, but this time around the change has come unusually early.
  • Falling rates are probably partly a consequence of high global liquidity. Though the credit cycle turned negative at the end of 2022, it appears to be stabilising with Europe and perhaps also China exiting a short deleveraging phase.
  • Also, balance sheets are still flush with the abundance of excess cash accumulated during the pandemic recovery, especially in the US. Though the majority of savings is concentrated in the upper percentiles of the income distribution, the poorest families too are much better off than pre-crisis – the bottom 40% still have a quarter of a trillion dollars more at their disposal (a five-fold increase compared to 2019).
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