Economic Contraction

Expect a ‘procession of recessions’ in many major global economies over the next year, according to Nomura

In addition to the United States, economists at the bank believe that the euro zone, the United Kingdom, Japan, South Korea, Australia and Canada will face contraction, according to a recent research note. The odd one out is China, they noted, as the economy picks up after the lifting of COVID-19 restrictions.

“Increasing signs that the global economy is entering a synchronized growth slowdown, meaning countries can no longer rely on a rebound in exports for growth, have also prompted us to forecast multiple recessions.” , they said.

In the United States, Nomura expects a shallow but long recession that will last five quarters, with the Federal Reserve focusing all its energy on cooling the searing inflation that is spreading through the economy.

“We expect central banks to err on the side of over-tightening rather than under-tightening, in order to regain credibility,” they said.

Industry experts, like Scott Minerd of the Guggenheim, echoed Nomura’s expectations. He recently warned that since the Fed is “determined” to fight inflation, it is unlikely to care about the current sell-off in stocks until panic floods the market.

The Nomura team believe the US economy will slip into a recession in the final quarter of this year as rising interest rates, high inflation, negative consumer sentiment and continued supply disruptions collectively dampen the growth.

“A muted initial response to inflation will likely keep policymakers — both monetary and fiscal — on the sidelines, and we don’t expect the Fed to start cutting rates until September 2023,” Nomura said. “Lack of policy response may prolong the downturn, but strong initial conditions may limit the initial pace of contraction,” they added.

Europe is heading for a similar, if not deeper, recession to the United States, analysts wrote, if Russia completely cuts off natural gas supplies to the region. Meanwhile, Japan appears to be in line for the slightest slowdown in growth.

Nomura sees mid-sized economies, including Australia, Canada and South Korea, which have experienced debt-fueled housing booms, at risk of deeper-than-expected recessions if interest rate hikes trigger real estate crises and deleveraging.

China, however, is expected to buck the trend as the economy recovers with accommodative monetary policy in place, although it risks renewed lockdowns and another economic contraction if Beijing sticks to its zero COVID strategy. Nomura said.