JPMorgan has backed off from its recession forecast for the first half of 2024 and says it now sees a 55% chance of a “soft landing” for the global economy through late next year.
A note written by Bruce Kasman and Joseph Lupton on Tuesday said that “surprising positive developments related to balance sheets, US supply-side performance, and global financial conditions challenge the view that higher rates are “boiling the frog” when it comes to economic growth.
The bank previously fretted that higher-for-longer interest rates would stifle private sector growth, jack up debt service costs, and add drag on expansion.
But now, with upbeat data painting a rosier picture, the bank sees a 55% chance of a soft landing scenario extending through at least the end of next year. On top of that, the bank introduced another possibility as part of its soft landing outlook, which suggests a 30% chance that global expansion will continue without significant easing of monetary policy among developed economies.
“The larger shift in our recent thinking, however, is about the relationship between interest rates and the life of the expansion,” Kasman and Lupton wrote.
While inflation stays sticky and rate cut expectations wane, JPMorgan notes no disruption in global financial conditions, and key indicators hint that the drag from monetary tightening is rapidly fading, the analysts note.
On the earnings side, corporates in developed markets surpassed expectations last year, with margins holding close to record highs, demonstrating surprisingly resilient profitability despite high policy rates.
Meanwhile, the resilient US labor force has fueled robust productivity gains alongside rapid employment growth.
Yet, JPMorgan chief Jamie Dimon has recently painted a less rosy picture in his recent shareholder letter. The bank boss says he sees much lower odds of a soft landing than markets are pricing in, pointing to the sharp rise in food and energy prices, steeper borrowing costs, and increased recession risks.
According to Dimon, “we may be entering one of the most treacherous geopolitical eras since World War II.”
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