Global Recession Concerns Pick Up

Concerns over a looming global recession have picked up of late, even if the narrative has shifted to a ‘soft’ or even ‘no landing' scenario since the onset of 2023, says Mercer’s ‘Navigating Investments.’ However, recessions are nothing new and while history doesn’t repeat itself, it tends to rhyme. “Thus, we can look back at past recessions and compare current conditions to those that prevailed at the onset of each U.S. recession,” it says. The recessions of the 1970s and 80s resonate. These were both driven by high inflation exacerbated by geopolitical shocks and a forceful monetary response even as the economy was weakening. Central banks cannot fix commodity supplies or other supply-side constraints, so the only way to reduce inflation is through demand destruction, thus a deep recession and protracted economic malaise as experienced in the 1980s. At the same time, the current situation also has commonalities with recessions triggered by sharp exogenous shocks like the reaction to COVID in 2020, the 9/11 terror attacks in 2001, and the Gulf (1990/1991) and Korean (1953/1954) wars. These recessions were shorter and less severe. “Given what we have learned from past recessions and even depressions, the only seeming guarantee is that ‘this too shall pass.’ How long that takes and how investors react in the meantime will be crucial for long-term portfolio performance,” it says.