Summary

  • The ongoing indications of sustained underlying economic momentum, combined with easing inflationary pressures permitting central banks to move away from their highly restrictive policy stances, suggest that not only are the odds of “hard landing” scenario an increasingly low probability event, but the prospect of even a “soft landing” in which growth just slows is diminishing.
  • Barring an exogenous shock (such as a potential escalation of already elevated geopolitical stresses), it appears that the global economy may well end up skirting the widely and persistently forecast recession — and all of the negative fallout in markets that would come with it.
  • With that said, there remain downside risks to the outlook, and the attendant uncertainty means that the potential for a significant economic slowdown cannot be dismissed out of hand.
  • But, while there are clearly still risks to the outlook, the major headwinds – high inflation and resulting elevated interest rates – that were assumed to cause a recession are subsiding and there is increasing confidence that global economic momentum will be able to stay on track over the forecast horizon.
  • The prospect of continued steady, if unspectacular, growth and moderating inflation should permit central banks to continue to move away from their highly restrictive policy stances, which would ease financial pressures and support increased activities in the more rate-sensitive areas of the economy, such as real estate and capital investment.
  • Taken together, this represents a constructive backdrop for financial markets to continue to make headway in the months ahead.