Women eat and drink together outside a closed convenience store on May 31, 2022 in Beijing, China. China is lifting some COVID restrictions after mass protests over its zero-COVID policy.
Photo: Kevin Frayer/Getty Images
Economies have overheated and have begun slowing down, with some potentially in recession already. Are we there yet? Will monetary tightening lead to a deep recession?
In this episode of the Critical Thinking, Critical Issues podcast, Mercer colleagues explore the macroeconomy, the risk of recession, and the markets — where to invest both in the public and private asset space as we look ahead to next year.
On China’s economy:
The silver lining to the lockdowns in China has been that it reduced commodity demand. … The lack of domestic demand has reduced some of the commodity demand, which has eased inflationary pressures. If China does do a full reopening, a potential risk is that it starts to drive commodity prices higher again.
There is a [possibility] that commodity prices pick up in the second half of next year, and then the Fed … has to re-hike.
On global equities and credit assets:
The best we can look forward to is a stabilization of growth at a low-ish level, inflation coming down, and the Fed no longer hiking rates, and perhaps [in] two years, possibly cutting rates.
Credit assets generally are looking more attractive, because for the first ime in 15 years or so, you can get a return on bonds.
On where investors should be focusing:
Follow labor market data. … The labor market is going to give us the answer to the critical question of next year, which is how far and how fast does inflation fall, and what [do] the Fed and central banks do about it?
