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Is a global recession looming?

24 December 2018

Peter Elston, CIO at Seneca Investment Managers, provides his market outlook

Is another global recession looming? That is surely the million dollar question being asked by many, but I think the answer is no.

This has been a difficult year with equities, bonds and commodities mostly in the red, the common thread being that labour markets across the world, both developed and developing, are now tight. This has caused central banks to become uneasy, leading to a tightening of monetary policy.

Ten years on from the Global Financial Crisis, we’ve experienced a continuous expansion of the economy, but is this cycle now coming to an end?

The unnecessary US tax cuts have certainly boosted the economy, but at the expense of future growth.

Trade frictions could turn into a full-blown trade war that would precipitate a downturn. China’s economy has started to falter and may experience a hard landing that would reverberate around the world.

Moreover, the fault lines that caused the Great Financial Crisis in 2008 may become active again.

On the flip side, global monetary conditions are still essentially loose, therefore economies, corporate profits and equity markets should remain supported for a little time to come.

Whether a recession is imminent is hard to say. My view is that global monetary policy that is still loose should continue to support economies and markets. However, I could be wrong, so it’s best to try and prepare for it where possible.

We at Seneca began reducing risk some time ago now on the basis that the cycle was long in the tooth. Like death and taxes, recessions are inevitable.