J.P. Morgan’s latest Guide to the Markets has declared that the balance of risks to the global economy is shifting.
According to the report, there has been little change to J.P. Morgan’s core economic scenario since the beginning of the year, with a slight slowdown in US growth while growth in Europe has sped up a little.
This has caused the gap in growth in regions to narrow. According to JPM data, GDP growth across Europe will move from around 0.6% in 2024 to around 1.2% in 2024. In the US, J.P. Morgan predicted that GDP growth will temper down from about 2.6% to 1.9% over the same period.
They said: “The balance of risks around this view is, however, shifting. For much of 1H the risks were skewed to the upside – more consistent with ‘no landing’ and sticky inflation, than ‘soft landing’. The balance of risks is now more even, if not slightly skewed to the downside.”
See also: The International Monetary Fund: Uneven inflationary picture shrouds Europe
On the plus side, J.P. Morgan writes that inflation is also beginning to slow, which will allow central banks to ‘ease off the brake’. This, it said, will lead to core bonds being use as a shock absorber if there is any further deterioration.
It added: “We have more conviction in extending duration in European core bonds than the US. Within credit, we prefer the higher duration and credit quality of investment grade over high yield. Strategically, we still advocate building larger positions in alternatives to insulate from the structural presence of inflation and fiscal risks in the coming decade.”
Looking ahead, the J.P. Morgan authors said there were still too many ‘big unknowns’ with massive implications. These included the US election, which was just won for the second time by Donald Trump; the evolution of AI, and the unwinding of the Japanese carry trade. At the time of writing, J.P. Morgan had yet to factor in the recent collapse of the German government and the resulting election in February next year.
However, they did warn: “This summer’s volatility has demonstrated the importance of a well-diversified portfolio, and investors should be prepared to withstand further pockets of volatility ahead.”
