“These changes are a direct consequence of the elevated uncertainty characterising the current cycle. Shocks triggered by the pandemic, the war in Ukraine, and policy responses have resulted in a rather complex macroeconomic backdrop, making growth and inflation dynamics extremely hard to forecast,” he continued. 

“The recent turmoil in the banking system adds another layer of difficulty for central banks as it could threaten financial stability,” Chetouane added. However, his view from last year remains unchanged.
 
While growth in developed economies should gradually weaken due to tighter monetary policy, he expects it to remain strong. The stress in the banking system has strengthened his conviction that developed economies are on the verge of a significant slowdown and possibly a recession by the end of the year. But he highlighted that there were already indications of tightening credit conditions this year before the problems emerged in the banking system.
 
“The stress in the banking sector has stabilised but its full effect on credit and, in turn, on economic activity will take some time to play out,” he said. “Tighter lending or financial conditions should cause households to reduce spending and businesses to pull back on investment and hiring, helping to bring inflation closer to a 2 per cent target,” he continued. “In fact, a significant tightening of credit conditions could reduce the need for some additional tightening, but such a judgment is difficult, especially in real time,” Chetouane said.
 
“The bottom line is that there is great uncertainty around the extent to which the recent events may impact the real economy,” he said. After all, thanks to the swift intervention of policymakers, banks could become only marginally more restrictive. “Moreover, the strong balance sheets of businesses and households, as well as supportive fiscal policy, have so far managed to cushion the impact of tighter lending conditions, and they may continue to do so,” Chetouane concluded.

With headquarters in Paris and Boston, asset manager Natixis Investment Managers has more than $1.1 trillion assets under management, providing a range of solutions across asset classes, including ESG strategies.