Where’s the Recession?

For the last 18 months we’ve been permanently one month from the recession as central banks rapidly hiked interest rates. In October 2022, Bloomberg Economics forecast a US recession in the next 12 months with “100% certainty”.?

But it's not happening. In Q3 2023, the US recorded incredible GDP growth of 4.9%, the Eurozone’s unemployment rate is at record lows,? and even property prices are increasing – in the UK prices rose 0.2% in November.?

A way to understand this is to dive into consumer perceptions and the facts are, most people are not impacted negatively by rising rates. One thing I love with GWI is discovering data that defies conventional wisdom. Counterintuitive points. This is one: just maybe, getting away from zero interest rates is good for most people.?

And most people are not growing in negativity to their finances. Consumer sentiment remains very robust. Regardless of what's happening in the world, it has steadily increased from a Covid low in March 2020. No fall off here.??

What could be driving this positivity? Firstly the majority of people live in housing that is mortgage-free, a trend that is particularly common outside of the US and Western Europe. In Asia Pacific, owning a home outright is the dominant trend, with very few renters. In other regions with the exception of the US close to half the population live in a home owned outright. Even in North America, where this trend is lowest, still it’s only 39% who own with a mortgage. For this segment it doesn’t matter what the latest mortgage rate is.?

We also see high levels of renting, and as we know rising costs have been a long-term trend and one exacerbated in post-Covid worlds.

Could this be a result of ageing populations living it up mortgage-free? Well surprisingly, it's not just Boomers who own outright. Even if we dive into the UK and US, countries with high levels of mortgage lending, the majority of Gen Z, millennials or Gen X are not dealing with rising rates.?

Let's look at the other side of the coin. For many, rising interest rates finally mean earning a return on their investments. Why? The majority of people hold cash savings, and for the last decade, they have been earning nothing. Cash savings are by far the most preferred investment, 7 in 10 people worldwide hold them. Stocks, shares and other investments directly impacted by the rising cost of money are far less prevalent.

So let’s play this out through diverse consumer segments. Let's take a cash saver with a house with no mortgage and compare them to a mortgage holder with credit card debt.?

This shows us that, not only are there more people in the non interest rate impacted segment, they are also feeling radically better about the state of the economy.?

So just maybe, the conventional wisdom right now is wrong.?