A moderate recession linked to raising the interest rate will hit the United States during the current year, according to the prediction of the CEO of investment in “Lombardy-Odier”, Stephen Monier, who made it clear that the recession will not be similar to the recession of the global crisis, but rather a recession caused by investment, as happened in 2001.
Monier added in an interview with “Sky News Arabia Economy” that the recession in the United States will hit the real estate sector and some different areas of investment.
He said, “Most inflation in the United States is related to the labor market. The labor market is very tight, and there are many reasons for that in the United States. The only way the Federal Reserve can improve the demand situation is by raising interest rates.”
Monier indicated that the US Federal Reserve is expected to raise interest rates to 5.5 percent, “which will create an investment-led recession.”
He expected inflation to return to 3 percent by the end of the world and to 2 percent in 2024.
“In this scenario, there is not a lot of return that can be achieved by investing in the S&P 500 index, and we believe that there are better opportunities in emerging markets, especially Asia, China and Japan that will benefit from the reopening of the Chinese economy.”
Europe will avoid recession
On the other hand, Monier ruled out that Europe would fall into recession this year.
He said, “I think people were pleasantly surprised by the way Europe managed the energy crisis because of the war in Ukraine, and the warm winter helped as well, so we don’t expect that there will be a recession in Europe in 2023, but also that there will be no significant growth.”
The best scenario for inflation in the global economy, according to Monier, is for the US Federal Reserve to raise interest rates to 5.5 percent, and for the European Central Bank to raise the rate to 3.5 percent.
However, the CEO of investment in “Lombardy-Odier” also sees the possibility of an alternative scenario, which is that the effect of raising interest rates appears in the economy and markets during the coming period, and that there is no need to raise interest much.
In the worst case, the US Federal Reserve will raise interest rates to 6 or 6.5 percent, and the European Central Bank to 4 percent, according to Monier.
On China, the chief investment officer of Lombardy-Odier expected the Chinese economy to grow strongly this year, at a rate of 5.5 percent, adding that the performance of the Chinese stock market has improved a lot since the reopening of the Chinese economy.
Monnier also believes that healthy Chinese corporate earnings will drive higher growth in 2023
“There are sectors that are more attractive to China, probably the most important are the high-quality real estate developers because they will be helped by the government and also the consumer goods sector,” he says.
Lombard-Odier: There won’t be much opportunity in American stocks