- JPMorgan abandoned its recession forecast for the first half of 2024 and now estimates a 55% chance of a soft landing.
- The bank estimates there is a 30% chance that the global expansion will persist without major policy easing.
- Recent positive developments challenge the notion that higher rates are a drag on the economy.
JPMorgan has dropped its recession forecast for the first half of 2024 and says it now estimates a 55% chance of a “soft landing” for the global economy by the end of next year.
A note written Tuesday by Bruce Kasman and Joseph Lupton said “surprising positive developments related to balance sheets, U.S. supply-side performance, and global financial conditions call into question the notion that higher rates high levels “boil the frog” in terms of economic growth. .
The bank previously feared that higher and longer interest rates would stifle private sector growth, increase debt servicing costs and further dampen expansion.
But now, with optimistic data painting a rosier picture, the bank estimates there is a 55% chance that a soft landing scenario will extend at least until the end of the year next. In addition to this, the bank introduced another possibility as part of its soft landing outlook, which suggests a 30% chance that the global expansion will continue without significant easing of monetary policy in developed economies .
“However, the most important change in our recent thinking concerns the relationship between interest rates and the duration of the expansion,” write Kasman and Lupton.
While inflation remains stable and expectations for rate cuts diminish, JPMorgan notes no disruption to global financial conditions, and key indicators suggest the negative effect of monetary tightening is fading quickly, analysts note.
On the earnings side, developed market companies beat expectations last year, with margins remaining near record levels, demonstrating surprisingly resilient profitability despite high policy rates.
At the same time, the resilience of the U.S. workforce has generated strong productivity gains alongside rapid job growth.
Yet JPMorgan chief Jamie Dimon recently painted a less rosy picture in his recent letter to shareholders. The bank boss says he believes the chances of a soft landing are much lower than markets anticipate, pointing to sharp rises in food and energy prices, rising costs of borrowing and increasing recession risks.
According to Dimon, “we could be entering one of the most dangerous geopolitical eras since World War II.”
businessinsider
