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Special report: Outlook 2019

Managers see little recession risk in 2019

Eric Lascelles, chief economist at RBC Global Asset Management

Money managers think this year carries a low risk of a global recession, but expect 2020 to be a more difficult year.

Pensions & Investments asked money management executives to provide forecasts for the S&P 500 index, inflation and global gross domestic product, as well as their expectations of a recession.

Managers noted it has been 10 years since the S&P 500 has experienced a 20% bear market.

"I think there's something in the range of 35% recession risk in 2019," said Eric Lascelles, chief economist at RBC Global Asset Management in Toronto. "Of the recession models that are out there, and we run several, most of those are saying recession risk over the next year is 15% or 20%. I think the risk is higher than popularly acknowledged — I suspect markets are starting to price that in. But late cycle, recession risk is higher," and flattening yield curves, rising inflation, tightening central banks and the prospect of slowing growth mean in a bull, base and bear set of scenarios "your bear should be a recession," said Mr. Lascelles.

He added that he put a 40% chance on a recession in 2020.

Silvia Dall'Angelo, senior economist at Hermes Investment Management in London, said the odds of a recession — "focusing on the U.S. as it tends to lead the business cycle globally" — is 25% to 30% for the next 12 months.

UBS Asset Management's Ryan Primmer, head of investment solutions in New York, said the firm's proprietary recession indicator puts the probability of a U.S. recession over the next year at "just under 30%."

Lower probabilities were forecast by William J. Booth, managing director, co-chief investment officer and portfolio manager at Epoch Investment Partners Inc. in New York, at 20%; Seema Shah, senior global investment strategist in London at Principal Global Investors, who put the odds at 15%; and Larry Hatheway, head of investment solutions and chief economist at GAM, who put the risk of a recession in any major economy this year at 10%.

Most sources put global GDP at 3% to 3.5% this year; and inflation is expected to come in about 2%. That compares with real year-over-year GDP growth 3% as of Sept. 30, the most recent data point.

As for the S&P 500, forecasts ranged quite widely. Mr. Lascelles said RBC GAM's expectation is for a year-end figure of 2,900; while Ms. Shah and Mr. Primmer put their forecasts lower, at 2,600 and 2,750. respectively. The S&P 500 closed 2018 at 2,506.85.

What industry experts foresee for 2019
S&P 500Global GDPInflation10-year TreasuriesOilEuroGBP
William J. Booth, co-CIO, Epoch Investment PartnersUp 7% to 10%3% to 3.5%2%3.50%$60 $1.05 $1.20
Eric Lascelles, chief economist, RBC Global Asset Mgmt.2,9003.75%2.50%3%$55 (WTI), $60 (Brent)$1.17 $1.28
Silvia Dall'Angelo, senior economist, Hermes Investment Mgmt.3%2.75% to 3%$50 to $70
Neil Dwane, global strategist and portfolio manager, Allianz Global Investors<=0%~ 3%2.5% to 3%3.5% (H1), ~ 3% (H2)$70 to $75 + 0% to 10% on dollar+ 5% to 10% on dollar
David Riley, chief investment strategist, BlueBay Asset Mgmt.< 3,0003.50%> 2.5% (U.S.)3.50%$60 to $70 (Brent)
Michael Kelly, global head of multiasset, PineBridge Investments3,0003.50%<= 0%3% to 3.25%
Ryan Primmer, head of investment solutions, UBS Asset Mgmt.2,7503.50%3.30%2.85%$65 (Brent)$1.20 $1.40
Seema Shah, senior strategist, Principal Global Investors2,6003.50%3.20%$60 (WTI)$1.20 $1.25
2018 actuals2,506.65; -6.24% (Dec. 31)3.64% (June 2018)2.2% (Nov. 2018)2.68%$45.41 (WTI), $53.80 (Brent)$1.15 $1.28
Source: Bloomberg LP, International Monetary Fund