'Vibecession': Why many remain pessimistic despite an improving economy?

Hello and welcome to the latest edition of Finance Wrap-Up UK.

I'm Manas Pratap Singh , finance editor at LinkedIn News UK and Europe and every other week I bring you the top industry conversations and insights.

In this issue, we take a deep dive into the phenomenon of "vibecession" – a recession of sentiment –?gripping much of the developed world and spotlight J.P. Morgan Asset Management 's chief market strategist, Karen Ward , as she shares the key market and economic data which could have big implications for investors.

Big read

You've heard of economic recessions and depressions, but what about a "vibecession "??

This term, which has gained popularity over the past two years, is increasingly being used by market commentators to describe the current state of affairs – an economy that looks healthy on paper but doesn't feel right to many.

"Despite a strong global economy, roughly half of the adults are stressed about their personal finances in every country studied around the world," according to a new survey from CNBC and SurveyMonkey . The poll of over 4,000 people in nine countries found that inflation and rising prices are still the top money worries.

So where did this sinking feeling come from, even as the risk of a full-blown recession fades ?

The causes of this recession of sentiment

The pandemic seems to have played a major role in shifting perceptions. "The exceptionally tight jobs market of 2021 and 2022 set a new baseline of what 'good' feels like for a generation of workers," writes Aaron Terrazas , chief economist at Glassdoor . "What labour economists see as a renormalisation to pre-pandemic norms feels like a loss of relative status for many workers."

According to FinTech CEO Alex Medana , the "pandemic was a major downer in our minds," not just because of its personal impact on our lives but also because following that came runaway inflation and high mortgage repayments. All of which meant there was less money at the end of the month.

There are also signs of "trickle-down pessimism" in the workplace, Terrazas notes. Fewer mid-level employees are optimistic about their companies' prospects, likely reflecting the sentiment they're hearing from higher-ups. That pessimism then spreads to how people view the broader economy.

"Inflation was a major cause [for the vibecession], undoubtedly. However, there was still a missing piece to the puzzle," economists Julius Probst, PhD and Sam Kuhn write for Recruitonomics . According to them, the collapse of Silicon Valley Bank and the ensuing negative stories which flooded our news feeds had a role to play in making us "more pessimistic."

The pessimism is real

This feeling of not being better off than before is a phenomenon gripping much of the developed world – and there's some gloomy data to back it up. The CNBC/SurveyMonkey poll found widespread pessimism about the next generation's prospects. Outside of the US, Mexico, and Singapore, most parents think their children will be worse off financially.

What's more, about half of people who identify as middle class also say they're living paycheque-to-paycheque. Retirement worries abound too. In the US, Australia, and Germany, roughly half of adults say they're behind in saving for their golden years.

The same goes for startup founders and venture capitalists. Illai Gescheit , venture partner at 西门子能源 Ventures, says many founders and fund managers are currently complaining about how "raising capital is hard and even impossible ".

He adds: "Although we see more capital called by funds in 2024 than at any point in 2022 … the vibes among fund managers are that it's going to take a good two to three years for things to be positive from my conversations with them."

So what's the cure for the vibecession?

Unfortunately, there's no easy fix. "For consumers, a steady break from inflation will make an enormous difference," writes strategy and operations expert Scott Newton . He adds that companies "need to take stock of what is possible to improve efficiencies, roll back price increases, and understand how technology and operational improvements can drive better long-term value for our clients."

Terrazas suggests more transparency and reassurance from executives could stop early pessimism from trickling down.

Ultimately though, the vibecession is a reminder that the economy isn't just abstract data points – it's people's real, lived experiences, says fixed income specialist Ignacio Ramirez Moreno.

And this is something policymakers would be wise not to dismiss. "Feelings may be fuzzy, but they're no less consequential for our physical and economic wellbeing," Terrazas writes. "They merit our serious consideration rather than our professional gaslighting."

Despite positive economic indicators, do you feel pessimistic about the economy? What factors do you think contribute to this sentiment?

Member spotlight this week

J.P. Morgan Asset Management chief market strategist EMEA, Karen Ward , takes us through the top market and economic data – from inflation and interest rates to the stock markets – which could have implications for investors in the new quarter.?

Tune in to her commentary here:?

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