Overstated fears of recession

Global economic momentum is slowing down. The pace differs, but the direction is the same in all countries. This also naturally gives immediate rise to fears of a global recession. But there is no need to get things out of proportion. In my opinion the situation is not that bad.

Fears of a recession are currently being underscored by US yield structures. The US treasury bond curve between three months and ten years has recently inverted. In the past, this had often served as a precise indicator of an impending recession in the USA.

Financial markets should be wary of coining the phrase „This time everything will be different“. However, there is much to suggest that the yield structure has indeed lost some of its significance. The reason for this is that the US Federal Reserve has noticeably modified its reaction capacity in recent months and is now paying more attention to developments on financial markets. On the other hand, the inflation and growth indicators have lost some of their importance. The Fed’s actions have therefore become more short-term and are also aimed at helping to prop up capital markets.

An economic slowdown should be on the cards. Fears of recession are justified if external political shocks are likely, but not otherwise. The growth deceleration is also already finding reflection in corporate profits. However, the negative consequences have remained within bounds so far.

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