Deutsche Bank’s CEO warned against the global economy heading for a possible recession as central banks stepped up their efforts to curb inflation, joining the increasing chorus of policymakers and executives who paint a grim picture.
CEO Christian Sewing, in a speech in Frankfurt at the Future of Finance, said the global economy was buckling under pressure from multiple areas, such as the supply chain issues from China to surging food prices, especially in the poorest countries. Though the banks had predicted hiking interest rates to tame inflation for quite some time, the speed at which they are now tightening the monetary policy has surprised him.
In an interview, Sewing said he anticipates a 50% likelihood of a global recession. The US and Europe will likely face a recession in the second half of 2023 while the interest rates go up simultaneously.
His comments appeared on the same day as Citigroup analysts’ predictions about higher interest rates and supply constraints. Sewing said that he supported the central banks’ move, including the Federal Reserve, despite its impact on the economy’s growth. This was required to bring down the inflation level to sustainable levels, a risk to democracy.
Earlier in the week, at the Qatar Economic Forum, delegates including Tesla’s CEO Elon Musk, Atlas Merchant Capital’s Bob Diamond, Stanch art’s Bill Winters, Muriel Roubini, and others warned that the US was heading for a recession. JPMorgan & CO. CEO Jamie Demon told investors early this month t prepares for an economic hurricane.
Hawkish Stance
Economists at Citigroup wrote that history has shown that any disinflation carries a cost for growth, and they could aggregate the possibilities to a 50% chance for impending recession. Citigroup estimates the world economy to grow at 3% in 2022 and 2.8% next year. The economists said that if a recession happened, it would be of garden variety type, with unemployment rising by several percentage points and production output lower over a few quarters.
Economists see the development as a reasonable expectation, but according to them, the wildcard will be the stubbornness of the inflationary dynamics and how they pan out.
Sewing’s said that Deutsche Bank had already warned last year that the inflation was not transient. He had urged central banks to hike interest rates and was critical of the loose monetary policies, especially in Europe, where the negative rates had eroded banks’ profitability from lending.
The interest rate hike is expected to be a “net positive” for banks’ lending out, provided they are prudent in assessing credit risk when giving out loans.
