Stagnation

Wall Street analysts' estimates for real global economic growth have been raised slightly since the beginning of the year from 2.1% to 2.5%. The International Monetary Fund (IMF), for its part, even expects growth of 2.8% this year, followed by 3.0% next year. This raises the question: have we bottomed out on growth and are we now back on the upswing? 

We think the answer is: no, we are definitely not in that scenario. Potential growth on a global basis is between 3.5% and 4.0% and thus the forecasts for both this year and next year are below potential. We see the background for the more optimistic growth outlook for 2023 primarily in the expectation of positive impulses from the economic recovery in China. In the meantime, however, this recovery has turned out to be weaker than anticipated. Moreover, the situation in the developed world looks quite different anyway, with only very weak economic growth expected in the US in the second half of the year.

 Zero growth

Based on current data and forecast models, we must expect zero growth or even a mild or technical recession in the US until the end of the year. At the same time, the environment remains fragile and the two "swords of Damocles" - the regional banking crisis and the debt ceiling in the US - are the determining uncertainty factors or "tail risks", especially for the monetary policy stance of the Federal Reserve (Fed). This sentiment is also reflected in the very low level of confidence among American consumers, which has deteriorated sharply again in recent months. A ray of hope, however, is the sharp drop in inflation expectations in the US, which are now at 1.75% in the one-year range and 1.94% in the two-year range. Just two months ago, inflation expectations were 3.68% and 3.39%, respectively. We expect investors' focus to shift from inflation to economic growth in the coming months.

 Review investments

In this challenging macroeconomic environment with two weighty "tail risks", reviewing the investments in the portfolio is enormously important. Not least because of the delayed effect of the Fed's and ECB's interest rate steps, we expect a potentially "hot" summer on the markets with rising volatility. In such times, selection is a decisive success factor. In equities, we continue to favour the rest of the world over the US due to the valuation differential. In sectors, we continue to see potential in the healthcare sector.