The good, bad and the ugly - how concerned are we about the economic outlook?

Increasing doom and gloom

War is raging in Ukraine. The yield curve has briefly inverted. The Bank of America Merrill Lynch (BoAML) fund manager survey shows investors hold the most pessimistic economic view since 2008. Inflation is running at 8.5% in the US. The cost-of-living crisis is just starting, and the list goes on.

There is increasing doom and gloom in the investment community. We are turning more cautious on the macro-outlook and are raising defensive elements in portfolios, but it is too soon to be outright bearish. Before the Russian invasion of Ukraine, inflation had become problematic and the tight labour markets in key western economies tell us we are in the maturing/late stages of the business cycle. Investors accept that growth is bound to slow in 2022 from the rapid pace in 2021 and higher inflation means monetary policy has to be tightened. The war in Ukraine has intensified existing i...