“In terms of hiring intentions, capital expenditure intentions, and consumer spending intentions, those are all now sharply lower, and we’re starting to see actual economic activity soften. So, not just confidence, not just intentions, but, now, the activity itself,” he said. “While we think recession is more likely than not over the next year, we’ve been saying that’s a good 75% plus probability in the North American context and even higher in the European and the UK context.”
Central banks are still hiking interest rates quickly to counter inflation. There’s continuing concern about Russia’s war on the Ukraine, and how Russia’s natural gas supply could impact Europe’s energy supply and economy next winter. COVID cases are still rising significantly, meaning production could temporarily dim again, even if there aren’t early-pandemic style global lockdowns.
Lascelles said RBC is still positioning its investments very cautiously because, even though the markets have priced in some economic weakness, they may not have accounted for all of it yet.
“That’s exactly why the stock market’s weaker,” he said. “So, I don’t think that if a recession were to happen, it would necessarily inflict huge damage on the markets. The markets are already reflecting some of the damage from the recession. So, there isn’t necessarily a lot more pain that has to be felt in response to that.”
Lascelles anticipate that inflation could become a little less intense in the coming months, partly because the central banks have already raised rates quite a bit, so may not need to proceed quite as far as previously assumed. He expects North American’s central bank rates could peak at 3.25% to 3.5% rather than the 4% previously anticipated, especially as supply chain problems resolve and key energy and commodity prices are improving.
