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Text on screen: Kimberley Stafford, Global Head of Product Strategy
Kimberley Stafford: So let's jump in and talk about what's happening now. A lot of volatility happening, clearly even the last week significant changes and dramatic changes in markets. So maybe you can start by walking us through our six to 12 month outlook.
Text on screen: Joachim Fels, Global Economic Advisor
Joachim Fels: Yeah. Which is evolving rapidly given what's going on out there. But we think we're in a situation where the economy is both too hot and too cold at the same time.
FULL PAGE GRAPHIC: TITLE – Short-term outlook. The graphic shows two charts. The first chart is titled Inflation too hot and shows a steep rise in the US headline Consumer Price Index from April of 2020 through April 2022. The second chart is titled Activity too cold and shows US real gross domestic product growth from December 2019, with projected growth through December 2022. Growth is expected to slow after peaking in June 2021.
Too hot in terms of inflation, too cold in terms of growth. And speaking of growth, we think that growth is slowing fast towards something like stall speed, right?
In aviation, stall speed that's the minimum pace that a plane needs not to crash. So if the economy is flying at stall speed, it doesn't take much of a shock to actually push us into recession. So recession risks are rising.
Images on screen: Global central banks
At the same time, inflation is way too high for central banks, way too high for comfort.
Last thing I'd say is if a recession comes, what kind of recession? We think it's going to be relatively shallow, at least compared to the great financial crisis and the pandemic recession. The reason is that the financial sector looks much more solid now. Household balance sheets are in much better shape. And we think that the housing market in particular shows some very solid fundamentals. Clearly housing activity is slowing, but overall the fundamentals in the housing market look much better than they did 12, 13 years ago. That's why the recession is more likely to be a shallow one, but it could be longer than usual because we may not get the same kind of rescues or fast and furious actions by central banks and governments.
Text on screen: For more insights and information, visit pimco.com
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