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Feb 14, 2023

Sharp drop in investors predicting recession, reports Bank of America

Sticky inflation remains biggest market concern

For some time now investors have debated whether the global economy will experience a soft or hard landing following months of monetary tightening by central banks.

In the latest fund manager survey from Bank of America (BofA), those who predict a lighter touchdown are now firmly in the majority.  

This month’s edition of the research, which polled 262 individuals with a collective $763 bn in assets, finds a net 24 percent expect a recession over the next 12 months, down from a peak of 77 percent last November.

London skyline
Photo: Robert Bye

In addition, global growth expectations are at their highest for a year, with only a net 35 percent forecasting a weaker economy over the coming 12 months.

‘Macro sentiment remains bearish, but is now the least bearish since the start of the Russia/Ukraine war,’ write BofA analysts.

They add, however, that respondents ‘still see stagflation as the most likely macro backdrop in the next 12 months’, with more than eight in 10 expecting below-trend growth and above-trend inflation until January 2024.

Use of cash

With conditions easing, the proportion of investors saying the best use of cash is improving the balance sheet has slipped from 53 percent in January to 48 percent this month.

More than one in five (21 percent) say the best option is to return cash to shareholders through dividends and buybacks, the highest level since August 2017.

The factor that could have the biggest negative impact on markets is stubbornly high inflation, reports BofA, with 40 percent of investors selecting this option.

The second-biggest concern is a worsening geopolitical picture (17 percent), followed by a deep global recession (16 percent).

The survey was conducted between February 2 and February 9, so results were collected before today’s US inflation reading, which found the consumer price index rose 0.5 percent in January and 6.4 percent year on year, slightly more than predicted by economists.