Economies Are Headed For A “Necessary” Recession, Says abrdn

Economies Are Headed For A “Necessary” Recession, Says abrdn
Carl Hazeley

6 months ago1 min

Investment giant abrdn just updated its macroeconomic forecasts. And although its economists are a little more optimistic than they used to be, they’re still predicting that a US recession will come and reset inflation back to manageable levels. They say that’s the most likely of a handful of possible scenarios (shown in the chart). Here’s a window into abrdn’s thinking…

The US and global consumer and services sectors will remain robust for longer than the firm previously forecasted. That’s thanks to consumers’ excess savings, still-strong employment, and the – eventual – boost to people’s personal finances from lower inflation.

Overall inflation will continue to drop sharply over the next year, brought down by sliding energy and food prices – and should hit those 2% central bank targets by late 2024. But the “core” inflation measure (remember: this strips out volatile items like energy and food) won’t drop as steeply: services inflation in particular will be harder to shake off, and in abrdn’s view, a recession will be necessary to bring inflation back in line with targets.

Central banks will continue hiking interest rates: abrdn is forecasting that the US Federal Reserve will increase rates in July, and that the European Central Bank and the Bank of England will both hike rates twice more this year.

And that means those “necessary recessions” are likely to hit developed markets (and some emerging ones too), probably around the new year – which is later than abrdn previously forecasted. Those will be followed, in early 2024, by interest rate cuts that they say will continue through the year to a level lower than most other economists are currently predicting.



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