Economic and Market Commentary

Recession Risks are Rising

In a volatile environment that’s too hot in terms of inflation and too cold in terms of growth, it wouldn’t take much of a shock to push us into recession – but PIMCO thinks the next recession is likely to be relatively shallow.

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Text on screen: PIMCO

Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.

Text on screen: Kimberley Stafford, Global Head of Product Strategy

Kimberley Stafford: So let's jump in and talk about what's happening now. A lot of volatility happening, clearly even the last week significant changes and dramatic changes in markets. So maybe you can start by walking us through our six to 12 month outlook.

Text on screen: Joachim Fels, Global Economic Advisor

Joachim Fels: Yeah. Which is evolving rapidly given what's going on out there. But we think we're in a situation where the economy is both too hot and too cold at the same time.

FULL PAGE GRAPHIC: TITLE – Short-term outlook. The graphic shows two charts. The first chart is titled Inflation too hot and shows a steep rise in the US headline Consumer Price Index from April of 2020 through April 2022. The second chart is titled Activity too cold and shows US real gross domestic product growth from December 2019, with projected growth through December 2022. Growth is expected to slow after peaking in June 2021.

Too hot in terms of inflation, too cold in terms of growth. And speaking of growth, we think that growth is slowing fast towards something like stall speed, right?

In aviation, stall speed that's the minimum pace that a plane needs not to crash. So if the economy is flying at stall speed, it doesn't take much of a shock to actually push us into recession. So recession risks are rising. 

Images on screen: Global central banks

At the same time, inflation is way too high for central banks, way too high for comfort.

Last thing I'd say is if a recession comes, what kind of recession? We think it's going to be relatively shallow, at least compared to the great financial crisis and the pandemic recession. The reason is that the financial sector looks much more solid now. Household balance sheets are in much better shape. And we think that the housing market in particular shows some very solid fundamentals. Clearly housing activity is slowing, but overall the fundamentals in the housing market look much better than they did 12, 13 years ago. That's why the recession is more likely to be a shallow one, but it could be longer than usual because we may not get the same kind of rescues or fast and furious actions by central banks and governments.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO

Disclaimer


Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. 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W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG).  The Italian Branch, Irish Branch, UK Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority; and (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication.| PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. 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CMR2022-0701-2267917

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