Economic Update – “Fear of Recession” July 2022

The end of the financial year has closed out with equity and bond markets finishing in the red. It has been a year of adjustment as the world has largely moved on from COVID-19 lockdowns to ‘living with COVID-19’ only to be hit with a significant rise in geopolitical issues. This has culminated with a stepper than expected rise for inflation and a late but strong response from central banks to curb inflation risks. The outlook is complicated by all these global factors, in Australia, domestic factors such as floods are adding to the pile of issues in the short-term.

Looking forward investment markets will continue to face challenging conditions. The main factors to date have included rising interest rates, higher than anticipated inflation, continued lockdowns in China, and the flow-on effects from the Russia-Ukraine conflict. There appears to be no immediate reprieve in sight. Interest rates are expected to rise further, consumer demand will continue to deteriorate/remain weak while rates are rising and loss of purchasing power from higher inflation/prices, ongoing COVID zero strategy in China causing disruptions to supply chains, and the conflict in Ukraine keeping Europe and its allies on edge as geopolitical tensions rise. Fears of recession are creeping in, markets are now pricing it in.

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