In an assessment of the world economy HSBC Asset Management, the investment arm of the banking behemoth warned that the United States is set to face economic headwinds in the latter part of this year, in what could potentially usher in a global recession.

The firm, according to CNBC, also foresees a tumultuous 2024 for Europe, grappling with its own economic contraction, while the U.S. economy is anticipated to hit a downturn in the last quarter of this year.

HSBC’s mid-year economic outlook paints a grim picture of the coming months, stating that the warning lights for a recession are “flashing red” across a slew of economies. This alarm is exacerbated by an apparent disconnect between fiscal and monetary policies and the equity and bond markets, which could spell trouble for investors and policymakers alike.

HSBC Asset Management’s Global Chief Strategist, Joseph Little, acknowledged that certain segments of the economy have managed to hold their ground, but stressed that the precarious balance of risks “points to high recession risk now.”

He observed that while Europe is trailing the United States in economic performance, the broader macroeconomic trajectories are worrisomely aligned. In a report, Little wrote that the country is “already in a mild profit recession, and corporate defaults have started to creep up too.” He added:

  • “The silver lining is that we expect high inflation to moderate relatively quickly. That will create an opportunity for policymakers to cut rates.”

Despite the assertive stance of central banks and the stubborn persistence of inflation, particularly in key areas, HSBC Asset Management predicts that the U.S. Federal Reserve will slash interest rates before 2023 draws to a close, expecting the European Central Bank and the Bank of England to follow suit next year.

According to Little if the recession strikes prematurely, central banks may find their hands tied, unable to reduce rates amidst soaring inflation. He likened the forthcoming recession scenario to that of the early 1990s, with HSBC’s central forecast being a 1-2% contraction in GDP.

Little added that this recession might not be potent enough to expunge inflationary pressures from the system, thus developed economies could face an era of slightly elevated inflation and interest rates.

HSBC has been taking a “cautious overall view on risk and cyclicality in portfolios,” with interest rate exposure being “appealing,” and the firm seeing “some value” in European bonds. On a brighter note, HSBC is optimistic about China and India.

As China recovers from the COVID-19 pandemic, HSBC believes that high domestic savings, a recovering property sector, and government initiatives will bolster domestic demand. In India, a resurgent economy driven by consumer spending and a buoyant services sector has earned the country the moniker of the “main macro growth story in 2023” according to Little.

As CryptoGlobe reported HSBC has reportedly rolled out its inaugural cryptocurrency services, allowing clients to engage in buying and selling of Bitcoin and Ethereum ETFs listed on the Hong Kong exchange.

Featured image via Unsplash.