Swiss Re warns that the United States could have entered a recession
A new note from Swiss Re posits that the United States has already begun to slide into a recession.
In his Economic outlook: the “great bond massacre” 2.0the company says the world’s largest economy is either in recession or about to enter one, referring to data from the Atlanta Fed’s GDP tracker.
The authors of the note – Jérôme Haegeli, chief economist of the group; Thomas Holzheu, chief economist for the Americas; and Charlotte Mueller, Chief Economist for Europe, all of whom work for Swiss Re, described the current situation: like today.”
They added: “While the 1994 Fed hike cycle in 1994 successfully staged a ‘soft landing’ for the US economy, this time is different, and we expect a recession for the US in next 12 to 18 months, with perhaps a technical recession already in. The regime’s rapid shift to a steep bull cycle and quantitative tightening after more than a decade of aggressive unconventional monetary policy puts financial markets in unknown territory.
Looking ahead to what will happen with sovereign bonds, Swiss Re said it expects yields to end this year slightly higher than current levels as “ultra-loose” monetary policy continues to relax, despite recession fears.
They added: “Even a recession may not be enough to significantly lower yields in a sustained manner if it is either moderate and/or not accompanied by disinflation. The risks are for further upside inflation surprises that could push yields even higher. For this reason, we are raising our 10-year Treasury yield forecast to 3.2% for the end of 2022 and 3.5% for the end of 2023.”
Talking about a potential recession refers to a recent Reinsurance news story when Berenberg issued a memo saying insurers were well placed for one.
At the time, the bank predicted what it called a “shallow recession” in Europe, the UK and the US. Reasons given included strong cash positions and cash flows, solvency ratios near historic highs, combined ratios in the 93-95% range, and the sweeping overhaul of corporate insurance contracts to exclude cyber and pandemic risks and limit business interruption.
Swiss Re has recently made further comments on the potential, releasing a report late last month that the global economy has regained macroeconomic resilience in 2021, but warning that new challenges could “derail the recovery” until further notice. ‘in 2022 and in 2023. These comments themselves followed the company estimating that in 2020 the non-life profitability gap was around 7-11% of premiums earned, due to the environment of low yield.