Macro scenarios & investment implications
Cyclical recession: Our base case
This would see a moderate contraction followed by a return to growth in late 2024 or early 2025. Inflation would be sticky before returning to target, with interest rates staying higher for longer followed by central banks pivoting.
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In equities, we would be cautious on European cyclicals, but expect to find opportunities in financial and bond proxies such as consumer staples.
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Inflation-linked bonds would be preferred as inflation remains sticky, although nominal bonds would benefit from faster-than expected rate cuts in the latter part of the year.
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In many ways, a cyclical recession would be the ‘Goldilocks-zone’ for property investment given that a small amount of inflation is positive for real estate.
Soft landing
Balance sheet recession
