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“However, we would expect any recession to be mild and short-lived, and for the US economy to register 0.9 per cent growth for the full year,” the update said.
The independent Swiss banking group expects modest dollar weakness against the euro, the Swiss franc and Japanese yen. US consumer price inflation is expected to be down to around 3 per cent by year-end.
In Europe, the banking sector looks generally more insulated from stresses, and core inflation (minus food and energy costs) has only recently started to decline.
The update believes the European Central Bank (ECB) is quite close to the peak of its hiking cycle, with rate cuts also likely in the first quarter next year, following full-year 2023 growth of 0.7 per cent.
Interest rate cuts are likely to happen next year, but Lombard Odier does not see rate cuts in either the United States or the euro zone giving the global economy any significant support before the second half of 2024.
Consumption will stay a key growth anchor in China in the second quarter this year and beyond, while the sustainability of its recovery in the first quarter this year after the pandemic has been questioned, the update noted. Inflation remains contained, and Lombard Odier retains its full-year growth forecast of 5.5 per cent for the Asian giant this year.
“We expect the Fed and ECB to pause yet keep policy rates tight in 2023. Rapid cuts could follow under a more severe recession scenario than we expect, or one that sees further banking stress; neither of which would be obviously positive for risk assets. In other words, disinflationary efforts will succeed, but at the cost of inflicting pain on the economy,” the update adds.
Fibre2Fashion News Desk (DS)