scorecardresearchInflation to persist for a longer time; we may see worst recession in living

Inflation to persist for a longer time; we may see worst recession in living memory, says Jim Walker

Updated: 21 Jul 2022, 11:20 AM IST
TL;DR.

  • Jim Walker belives a recession is inevitable and it will be around for a longer time and this could be the worst recession in living memory.

For the market, Walker believes the worst has not even begun yet. He expects S&P500 to fall more than 20% this year and then another 20% next year as corporate profits are crushed. (AP Photo/Lee Jin-man)

For the market, Walker believes the worst has not even begun yet. He expects S&P500 to fall more than 20% this year and then another 20% next year as corporate profits are crushed. (AP Photo/Lee Jin-man)

Inflation is not likely to abate fast and the recent correction in commodity prices should not be taken as a signal that inflation is easing globally, said Jim Walker, chief economist of Aletheia Capital, an independent research firm focussing on Asia, in an interview with the Economic Times (ET).

"We expect inflationary pressures to persist for a lot longer than the markets suspect. Once prices have been disturbed to a large extent, which is the case now, they feed back on themselves. The direction of inflation today, regardless of the correction in commodity prices, is unpredictable," Walker told ET.

"Even if inflation fell back to the 6% mark it would mean that cumulative inflation over two years would be well into double digits. So, the pressures are not abating fast. We expect Fed funds rate to reach 6% in this cycle and might need to be around for two to three years to quell the inflationary impulse," he added.

Walker also believes a recession is inevitable and it will be around for a longer time and this could be the worst recession in living memory.

"A recession is inevitable. Central banks around the world have been far too cavalier with money printing for a long time and the response to the pandemic lockdowns was the final straw as they fuelled government fiscal deficits. Now we have uncontrollable consumer price inflation hitting around the world. The response is inevitable: Higher interest rates and slower growth. The recession should hit in 2023 and will be around for a long time," he said.

"My expectation is that this will be the worst recession in living memory. The levels of debt are unprecedented and will not even cope with interest rates where they are now. If central banks cut rates too soon the inflation consequences and social unrest will be frightening. We are in a perfect storm, and it will take years, not months, to pass, said Walker.

Disclaimer: This article is based on an ET interview. The views and recommendations made above are those of the analyst and not of MintGenie.

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First Published: 21 Jul 2022, 11:20 AM IST