Opinion – Marcos de Vasconcellos: Deep recession is already seen as necessary; and now?

A deep recession is “necessary” to pull inflation back to target, says none other than the world’s biggest asset manager, BlackRock, when commenting on its outlook for the US economy.

In the assessment of its analysts, the only way to reduce the inflation that plagues the largest economy in the world is to “crush” demand. And how is that done? Raising interest rates and generating a recession.
This, they explain, is because inflation driven by the drop in supply (due to the impacts of Covid and the War in Ukraine) presents a dilemma to central banks: monetary policy cannot stabilize inflation and activity at the same time, as happens when the Rising prices are driven by increased demand in an overheated economy.

And this time, the global economy cannot look to China for help. The reduction in Chinese commercial activity and the lack of political response suggest that the Asian giant will not act to heat up the economy, according to BlackRock.

Goldman Sachs bank analysts, in turn, did the math: the prediction is that the global stock market will continue to sink in 2023. The logic is in the history: stocks only start to rise when interest rates start to fall —which is only expected for the end of next year.

The bank believes that the global economic slowdown is cyclical, the kind that lasts, on average, 26 months and takes about four years for inventories to recover. Studies point out that, in these periods, stocks fall about 30% and are hit by short rallies before bottoming out.

“That is why we believe it is too early to position itself expecting a ‘bull market’ (high market),” says a report released by the bank last week.

The problem goes far beyond the US and China. Europe will have a need to source fossil fuels from outside Russia to meet its energy demands and reduce its dependence on Moscow.

The perspective of chaos in the global economy can bring good opportunities for the Brazilian market. In the case of Europe, by the way, we are major exporters of oil and other commodities that should no longer be bought from Russia.

But, in addition, when investing in the First World becomes more risky, big investors start to look favorably on emerging markets, such as Brazil, which, despite the risk, pay better.

Of the few asset classes recommended by BlackRock for the next 6 or 12 months, by the way, are private credit securities from countries like ours.

“Higher yields already reflect the tightening of the monetary policy of emerging countries, in our opinion, and offer compensation for the risk of inflation”, say the manager’s analysts.

The recent issuance of CRIs (Real Estate Receivables Certificates) by Petrobras proves the thesis. The company, which has a very high credit rating (security), offered a return of at least 6% per year above inflation for those who bought its fixed income securities, maturing from 2030 to 2037.

Global players are watching your backyard. It’s good that you are too.