Most credit portfolio managers expect a recession in Europe, the U.K. and the U.S. later this year or in 2024, according to the latest survey from the International Association of Credit Portfolio Managers.
Sixty-five percent of respondents expect Europe and the U.K. to be in recession before the end of the year, 19% forecast a recession in those regions in 2024, and 14% of respondents say that Europe and the U.K. are already in recession.
For the U.S., 56% of respondents believe the country will be in recession by the end of the year, while 33% forecast a recession in 2024.
In a news release Friday, the IACPM notes that survey respondents have been expecting an economic slowdown since global central banks started raising interest rates at the end of 2021, and that despite their pessimism, respondents point out that credit default levels remain relatively benign, consumer spending is relatively healthy, and low unemployment remains the norm in many regions.
"Maybe because of all the government support rolled out to fight the financial effects of the pandemic, many parts of the world are faring reasonably well. In fact, we hear law firms in the U.K. which ramped up to handle insolvency cases haven't yet seen a pick up in business," said Som-lok Leung, IACPM's executive director, in the news release.
"That said, we are beginning to see higher corporate defaults, somewhat slower retail sales and central banks' statements that they aren't finished fighting inflation. All of this adds up to a weaker economic outlook," Mr. Leung said.
The great majority of respondents forecast rising corporate defaults across the globe over the next 12 months: 85% of respondents believe defaults will rise in Europe, 83% believe they will do so in the U.S., and 76% of respondents say Australia will see rising defaults.
Asia will remain the least affected, according to respondents, with 55% saying defaults will rise in the region over the next 12 months, while 45% say they will remain the same.
When asked to forecast how credit spreads will move over the next three months in certain regions and types of debt, 77% said they expect spreads to widen for North American high-yield debt, and 72% expect spreads to widen for European high-yield debt.
The sentiment is little better for European and North American investment-grade fixed income, with 65% and 53% of managers, respectively, expecting credit spreads to widen in those areas over the next three months.
The survey was conducted among IACPM members, who are credit portfolio managers at more than 130 financial institutions in the U.S., Europe, Asia, Africa and Australia.