Over the last 18 months, there has been much talk of recession globally and more recently in Australia. But, despite mild technical recessions (ie, two consecutive quarters of falling GDP in a row) in the US and Europe in the last 18 months, growth has generally been more resilient than expected and now with inflation falling many have started to give up on recession with increasing talk of Goldilocks (ie, where growth is okay and inflation is falling). So, have we dodged the recession bullet?
Key points:
Rapid monetary tightening points to a high risk of recession and, given lags in the way it impacts the economy, just because it hasn’t happened yet does not mean it won’t.
However, a combination of falling inflation, a lack of excesses beyond inflation, excess household saving, the possibility of rolling sectoral recessions & strong population growth (in Australia) mean we could still avoid recession.
We remain of the view that shares will do well on a 12-month horizon, but the risks around recession and higher bond yields mean that the risk of a correction is high.