Summary

  • The outlook has shifted drastically over the last six months, with the general optimism at the year’s outset now replaced with growing pessimism, as increased cost pressures more than offset the quality of life benefits associated with record low unemployment and easing public health restrictions. It is not a coincidence historically low consumer sentiment comes as gas prices, perhaps the most visible variable cost to most households, touched their own highs.

  • This creates a challenging environment for policymakers. The rapid stimulus-supported recovery has resulted in economies operating with excess demand that needs to be tempered in order to rein in price pressures and limit the longer-term demand destruction posed by high inflation. There is reason to believe that households and businesses have the capacity to absorb this impact.

  • That said, global growth momentum is slowing, and there remains an abundance of headwinds combining with the pervasive negativity to create a fragile backdrop, materially raising the risk of an economic downturn materializing sooner rather than later; aggressively tightening policy would only serve to exacerbate the slowdown.

  • The bottom line is that the outlook remains highly uncertain, and the months ahead will see policymakers weigh each datapoint carefully to determine whether the odds favour the upside risks to inflation, the downside risks to growth or the baseline scenario of a soft landing.

  • For financial markets, while there are clear and present downside risks, the magnitude of the damage done to this point, combined with the abundant pessimism that is pricing in an increasingly dour outlook, arguably shifts the balance of risk in favour of potential upsides. “Bad” outcomes may not end up being “as bad as feared” as the backstop provided by underlying strength of consumer and business finances and a general lack of material imbalances could limit the overall economic fallout.
Want to read more? View the entire Summer 2022 Outlook
Download PDF
This commentary is for informational purposes only and does not constitute investment, legal, accounting, tax advice or a recommendation to buy, sell or hold a security. It is only intended for the audience to whom it has been distributed and may not be reproduced or redistributed without the consent of Guardian Capital LP. This information is not intended for distribution into any jurisdiction where such distribution is restricted by law or regulation. It shall under no circumstances be considered an offer or solicitation to deal in any product or security mentioned herein. This document includes information concerning financial markets that was developed at a particular point in time. This information is subject to change at any time, without notice, and without update. This commentary may also include forward looking statements concerning anticipated results, circumstances, and expectations regarding future events. Forward-looking statements require assumptions to be made and are, therefore, subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. Investing involves risk. Equity markets are volatile and will increase and decrease in response to economic, political, regulatory and other developments. The risks and potential rewards are usually greater for small companies and companies located in emerging markets. Bond markets and fixed-income securities are sensitive to interest rate movements. Inflation, credit and default risks are all associated with fixed income securities. Diversification may not protect against market risk and loss of principal may result. Index returns are for information purposes only and do not represent actual strategy or fund performance. Index performance returns do not reflect the impact of management fees, transaction costs or expenses. The opinions expressed are as of the date of publication and are subject to change without notice. Assumptions, opinions and estimates are provided for illustrative purposes only and are subject to significant limitations. Reliance upon this information is at the sole discretion of the reader. . Certain information contained in this document has been obtained from external parties which we believe to be reliable, however we cannot guarantee its accuracy. Guardian Capital LP manages portfolios for defined benefit and defined contribution pension plans, insurance companies, foundations, endowments and investment funds. Guardian Capital LP is wholly owned subsidiary of Guardian Capital Group Limited, a publicly traded firm listed on the Toronto Stock Exchange. For further information on Guardian Capital LP, please visit www.guardiancapital.com. January 2021