US recession risk presents headwind to global economy: Abrdn

The largest headwind to the global economy is the threat of recession in the US, according to abrdn.

In an investment outlook, the firm said there were multiple headwinds which made the threat of recession ever more likely including the war in Ukraine, contractions in China and the energy price spike in Europe.

However, the biggest challenge was posed by the threat of a recession in the US where inflation had reached 8.5%.

“The biggest challenge lies in the US. Excessive inflation is likely to require a significant risk in unemployment to bring it under control. This will likely need further sharp interest rate hikes and tighter financial conditions to cause a recession,” the firm said.

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“In turn, a contraction in the world’s largest economy would have large negative global growth spill overs, especially when combined with the rapid tightening of financial conditions in a number of emerging and developed economies.

Abrdn said there was a chance to see “other plausible scenarios, some of which may be more palatable” as the current market uncertainty made it difficult to make accurate forecasts.

Bonds and equity markets had already begun to rebound after the weakness at the start of the year and the corporate sector was producing earnings and cashflows that were ahead of expectations.

“This may be just a matter of timing – and we’ll still see this expected downturn a little later than expected – but it’s worth noting nonetheless.”