Nonetheless, “we believe that North America will avoid recession this year but have recalibrated expectations for lower economic growth,” the report said. However, the firm is “becoming more concerned” about a potential recession in Europe, due in large part to the macroeconomic impact of the war in Ukraine.
“Sanctions on Russia, curtailed energy exports from Russia to Europe and major interruption on the supply of globally important exporting regions, together with Covid-19 policies continuing to affect supply chains, have all contributed to sustained elevated pricing,” Mackenzie Investments said in a release.
“While inflation has been hard on growth-oriented markets, rising commodity prices could provide a boost to producer-oriented countries, such as Canada, supporting relative outperformance in Canadian equities.”
Commodities also were a “safe haven as a hedge in the wake of soaring inflation expectations,” according to the report.
The firm had predicted that March’s U.S. inflation rate of 8.5% “could mark the high for this cycle, although we won’t know for sure until the summer months.” Indeed, U.S. inflation hit 8.6% in May. Mackenzie Investments expects inflation to come down, but remain above the Fed’s 2% target, by the end of 2022.
The firm expects central banks to “follow a hawkish path” in the second half of this year.
As a result, Mackenzie Investments’ recommended being overweight on investment-grade bonds and Canadian equities; neutral on international and emerging markets equities, as well as high-yield corporate bonds; and underweight sovereign bonds and U.S. equities.
The report also noted that China faces persistent headwinds. Industrial production in the country “has likely contracted in Q2 due to logistics disruption and workforce lockdowns,” Mackenzie Investments said. However, the report predicted the slowdown in GDP growth in China “will bottom this year.”
Other headwinds affecting China include over-extended credit, inflated real estate values and de-globalization.
