This month the International Monetary Fund (IMF) released its half yearly global economic outlook, entitling it “A Rocky Recovery”.  

Against the backdrop of persistently high global inflation, three years of Covid, the war in Ukraine, and recent banking instability in the US and in Switzerland, the report sends a message of cautious optimism.

Slow down not a recession for most

Recent talk of global recession seems to be overstated. The IMF is projecting economic growth to slow from 3.4% in 2022 to 2.8% in 2023, and then to recover slightly to 3.0% in 2024.  

Averages can be misleading, and the global experience will not be shared by every economy.

Advanced economies have a worse economic outlook than developing economies, especially in the Euro region.   Both Germany and the UK are projected to experience recessions in 2023, while overall the Euro region is expected to grow at just 0.8% this year.

Globally, advanced economies are projected to grow in 2023 at just 1.2%, while developing economies will continue unabated with growth projected at 3.9%.  Much of that is being driven by the economic powerhouse of India.  

The growth of the world’s largest economy, the US, is projected to slow down this year to 1.6%, a figure shared with Australia. But while growth of the US economy is projected to continue to slow down in 2024 to just 1.1%, Australia’s will stabilise at 1.7%.

Not an exact science

The main variable in all of this is inflation.  If high inflation were to become entrenched in people’s expectations it would damage the functioning of the economy and be costly to reduce, involving even higher interest rates and unemployment.

In April, the Reserve Bank of Australia (RBA) left the cash rate unchanged, breaking the recent cycle of month-on-month increases. Interest-rate increases takes time to influence the economy, and with consumer sentiment already bleak, the RBA is observing things for a while.  However, this is likely just a breather, with more tightening of monetary policy likely required to get the inflation back within the range of 2 to 3% per annum.

A rocky recovery

The way forward is certainly rocky. Central banks must walk the tightrope of stemming inflation, taking care not to grind the economy to a halt or put undue pressure on the global banking system.

Whether or not the world goes into recession, and whether Australia shares that experience, is neither here nor there really.   Markets go up and markets go down. What’s important is that you own quality long-term assets that provide a hedge against inflation, while balancing the need for short-term money to live on.

At When Financial Solutions we are independent financial advisers who apply a framework designed to optimise investment outcomes in retirement. To manage your short-term need for cash flow, as well as your long-term needs so that you don’t run out of money.

And that will give you confidence to spend. It’s not a matter of ‘if’ but ‘when’.

This article is general and does not consider your personal circumstances so it may not be appropriate to you.  If you would like independent advice specific to you, please give us a call.