Hard economic landing now more likely, says Fidelity

THE global economy is more likely veering towards a hard landing than a soft landing, says Martin Dropkin, Fidelity International head of fixed income and Hong Kong investments, with the economic slowdown likely to become apparent around 2023.

In efforts to quell inflation, a number of central banks have hiked interest rates this year – most recently the US Federal Reserve’s 75-basis point hike in July, its fourth hike this year. US inflation in June came in at 9.1 per cent. The European Central Bank (ECB) also raised its benchmark interest rate by 50 basis points, its first increase in 11 years. The Reserve Bank of Australia has also just raised its cash rate.

“The US consumer historically has been pretty strong, but we’re seeing signs that order flows and spending are starting to slow,” said Dropkin. Fidelity has said that it expects rate hikes by the ECB and BOE (Bank of England) to be shallower than the Fed’s, due to their economies’ larger exposure to the Ukraine war and greater recession risk. Still, the likelihood of a hard-landing scenario for the global economy has risen from 35 per cent to 60 per cent, it says.