Quarterly investment outlook - Q2 2022
In this quarter's investment outlook, Chief Economist George Lagarias shares his thoughts on globalisation, recession, and the UK economy.
Globalisation
Globalisation is not inherently "good" or "bad". It is the natural, historic evolution of the nation-state, made possible by the wonders of the internet and the potency of capitalism.
Yet, its impetus in the past few years seems to have stalled. Partly, this is because the internet is much more mature. However, resistance from the nation-state, an ageing demographic and the failings of capitalism itself have put a brake on twenty years of extra-ordinary border-openings, trade deals and movements of population.
Is that pullback temporary? Has globalisation reached its natural limitations for now? Or is the world devolving back to national structures? The implications of answering that question will be profound for policymakers, portfolio managers and holders.
Read our update on globalisation
The perfect recession storm
The Titanic didn't just go down because of an iceberg. Evidence suggests that a fire was raging below deck for days, which the crew could not deal with. The fire may have weakened the hull and destroyed one or two key bulkheads, so once the iceberg struck, the water quickly poured into the rest of the ship. It was thus that the "unsinkable" became very much submersible.
Add J. Bruce Ismay's criminal preference of marketing over passenger safety and the fact that the Captain of the SS California, which was only twenty miles away, chose to ignore the signal flares to go to sleep, and one gets the picture of the perfect storm.
But people just remember the iceberg. When disaster strikes, we tend to focus on one thing, making for an easier story. However, humans usually are pretty good at managing individual risks. Economists use the "all things being equal principle" to analyse economic conditions and stress. We are challenged when we have to imagine scenarios where many things go wrong, and one risk materialising reinforces another. It's the third or fourth order events that are difficult to fathom.
Yet it is, more often than not, it takes a confluence rather than individual risks to cause catastrophe, as any veteran of the Global Financial Crisis will attest. We believe that there's a mounting probability that we are seeing such a confluence of risks now, one that could significantly hurt growth.
Read our update on the perfect recession storm
UK economic overview
The UK economy is expected to move in line with the global economy as systemic risks rise. Broadly speaking, we expect to see lower growth and higher inflation. As employees return to work from a Covid-hiatus, they can expect to find more challenging conditions than which they left.
Read our update on the UK economy
Join our next economy and your investments webinar
On Tuesday, 24 May, we will host the next edition of our Economy & Investments webinar series. During the session, our Chief Investment Officer and Chief Economist will examine the economic landscape for investors whilst answering the questions on everyone's minds.
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