- Several major economies are headed for a recession within a year, according to Nomura.
- The US, Europe, Japan and Canada are all at risk as rising interest rates curb growth.
- China is expected to buck the trend as loose monetary policy supports the economy.
A number of major economies will enter a recession within the next 12 months as tightening monetary policy and surging commodity prices choke off global growth, according to Nomura.
In addition to the US, economists at the bank believe the eurozone, UK, Japan, South Korea, Australia and Canada will face contraction, according to a recent research note. The odd one out is China, they noted, as the economy picks up again after lifted COVID-19 restrictions.
"Increasing signs that the world economy is entering a synchronized growth slowdown, meaning countries can no longer rely on a rebound in exports for growth, have also prompted us to forecast multiple recessions," they said.
In the US, Nomura expects a shallow, but long recession that lasts five quarters, as the Federal Reserve focuses all its energy on cooling the red-hot inflation that is spreading through the economy.
"We expect central banks to err on the side of tightening too much than too little, in order to regain their credibility," they said.
Industry experts, like Guggenheim's Scott Minerd echoed Nomura's expectations. He recently warned that given the Fed is "hell-bent" on fighting inflation, it is unlikely to care about the current stock sell-off until panic floods the market.
Fed Chair Jerome Powell dampened further optimism about the US economy, saying the central bank isn't trying to cause a recession, but a slowdown was certainly a possibility.
Nomura's team believe the US economy will enter recession in the final quarter of this year, as rising interest rates, high inflation, negative consumer sentiment and ongoing supply disruptions collectively drag on growth.
"A muted initial inflation response will likely keep policymakers – both monetary and fiscal – on the sidelines, and we do not expect the Fed to start cutting rates until September 2023," Nomura said. "The lack of a policy response may prolong the downturn, but strong initial conditions may limit the initial pace of contraction," they added.
Europe is heading towards a similar, if not deeper, recession to the US, analysts wrote, if Russia completely cuts off natural gas supply to the region. Meanwhile, Japan appears to be in line for the mildest slowdown in growth.
Nomura sees mid-sized economies, including Australia, Canada and South Korea, which have had debt-fueled housing booms, as being at risk of deeper-than-forecast recessions if interest rate hikes trigger housing busts and deleveraging.
China, however, stands to buck the trend as the economy recovers with easy monetary policy in place, although it is at risk of renewed lockdowns and another economic contraction if Beijing sticks to its zero-COVID strategy, Nomura said.