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Will this be a downturn or a recession?

Will this be a downturn or a recession?

Thursday 18 May 2023

Will this be a downturn or a recession?

Thursday 18 May 2023

The future of the world’s economy was delivered with tentative optimism at a market outlook event hosted by Julius Baer this week.

The private bank’s Chief Economist, David Kohl, visited Guernsey from Frankfurt to explain how 2022’s economic ‘cooldown’ has impacted 2023 and what the future of the world’s economy looks like.

He cited the war in Ukraine and additional geopolitical tensions as the reason why global economies slowed last year and that the result has been tighter monetary policy by the banks. 

“And when tighter monetary policy starts to affect the economy, it really wipes out the credit channel,” he said. “I think most people feel already the higher interest rates, with their credit liabilities, their loans, the loan books, and we’ve already mentioned that even banks are getting hit now,” he said. 

What is challenging for economic activity in the next year is not only the magnitude of interest rate hikes, but also the speed. 

“So, the big question for us is; will this end not only in a downturn of economic growth but also a recession?” 


Pictured: Julius Baer Guernsey's Head of Investment Management Craig Allen also spoke at the event.

Mr Kohl said a recession is a self-feeding downward spiral, which isn’t something he necessarily expects, due to a recession usually being preceded by higher unemployment than is actually being recorded. 

“Despite the fact that economic activity is slowing, there's still quite a big demand for employment. I return [to the question], is it a recession or slowdown?  

“From the investment side, we have strong indications that it's probably only a slowdown, because we enter in this lack of demand with pretty little excess investment. And on the employment side... companies are reluctant to fire people, despite this slowdown in demand. Thisbasically, is the major source for our optimism.” 

He said the global economy is entering monetary policy headwinds with very little imbalance between service or product demand and employment, “where there is no appetite to fire people”. 

“So, what’s missing is this self-feeding spiral.” 

The event was tied up by Head of Investment Management at Julius Baer, Craig Allen, who gave a run down of the types of investments the private bank was proposing for its clients in the current market. 

Pictured top: Mr Kohl.

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