# Credit squeeze ‘biggest threat’ to economic outlook, Fidelity International says Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-04-21 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Credit Squeeze: Biggest Threat to Economic Outlook Meta Description: Learn how a credit squeeze could lead to recession risks globally, affecting asset managers and traders. Stay informed with Fidelity International. URL: https://financedigest.com/credit-squeeze-biggest-threat-to-economic-outlook-fidelity-international-sayshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-04-19t130432z1lynxmpej3i0g5rtroptp4global-banks-svb-customers-bncrp-1736814110552-compressed.jpg) # Credit squeeze ‘biggest threat’ to economic outlook, Fidelity International says By Nell Mackenzie PARIS (Reuters) – The biggest threat to the economic outlook is a credit squeeze that has not finished filtering through the financial system, a senior official at Fidelity International told a European equities conference on Wednesday. For asset managers, hedge funds and traders gathered in Paris for the Tradetech equity trading conference, recession risks were a key talking point. The failure of two U.S. lenders and the forced takeover of [Credit Suisse](https://www.financedigest.com/credit-suisse-offers-higher-deposit-rates-in-asia-to-woo-the-wealthy-sources.html "Credit Suisse offers higher deposit rates in Asia to woo the wealthy – sources") roiled financial markets in March, and a sharp selloff in bank stocks tightened lending conditions further, raising concerns about a global downturn. The “biggest threat” to the economy is a “true and visible credit crunch”, Romain Boscher, [non-executive director](https://www.financedigest.com/fiat-republic-the-specialist-baas-platform-that-bridges-web3-and-banks-announces-the-appointment-of-two-industry-experts-as-non-executive-directors-to-the-board-of-its-dutch-subsidiary.html "Fiat Republic, the specialist BaaS platform that bridges web3 and banks, announces the appointment of two industry experts as Non-Executive Directors to the board of its Dutch subsidiary."), and former equities CIO at Fidelity International, which has over $660 billion in total client assets under management, told the conference. The International Monetary Fund last week trimmed its 2023 [global growth outlook](https://www.financedigest.com/london-stocks-fall-1-on-weak-global-growth-outlook.html "London stocks fall 1% on weak global growth outlook") as higher interest rates cool activity but warned a severe flare-up of financial system turmoil could slash output to near recessionary levels. Major [central banks](https://www.financedigest.com/irish-central-bank-eases-strict-mortgage-lending-limits.html "Irish central bank eases strict mortgage-lending limits") such as the U.S. Federal Reserve and European Central Bank have ramped up borrowing costs over the past year to curb an [inflation surge not seen](https://www.financedigest.com/hungary-cenbank-seen-hiking-100-bps-to-11-75-next-week-as-inflation-surges.html "Hungary cenbank seen hiking 100 bps to 11.75% next week as inflation surges") in decades.Between them, central [banks in the developed world](https://www.financedigest.com/world-bank-warns-global-economy-could-easily-tip-into-recession-in-2023.html "World Bank warns global economy could easily tip into recession in 2023") have hiked rates by over 3,000 basis points in this tightening cycle. The economy has been assailed by lots of [things at the same time](https://www.financedigest.com/it-is-time-insurers-act-smart-by-making-legacy-systems-a-thing-of-the-past.html "It is time insurers act smart, by making legacy systems a thing of the past"). We have seen credit conditions tighten dramatically in the past month or so,” said Shamik Dhar, chief economist at BNY Mellon [Investment Management and a former](https://www.financedigest.com/mg-appoints-former-head-of-axa-investment-managers-andrea-rossi-as-new-ceo.html "M&G appoints former head of AXA Investment Managers Andrea Rossi as new CEO") Bank of England (BoE) official. An added danger, said Dhar, was any remaining question, particularly in Britain, that [inflation might be transitory](https://www.financedigest.com/fed-ecb-and-boe-hop-aboard-the-transitory-inflation-express.html "Fed, ECB, and BOE hop aboard the ‘transitory’ inflation express"). Higher rates should be a permanent expectation, he said. Britain was the only country in western Europe with double-digit inflation in March, data showed on Wednesday, [bolstering bets the BoE will raise rates](https://www.financedigest.com/uk-inflation-hits-9-4-bolstering-bets-on-big-boe-rate-hike.html "UK inflation hits 9.4%, bolstering bets on big BoE rate hike") again in May. The Fed too is expected by traders to [lift rates](https://www.financedigest.com/britain-lifts-rates-by-most-since-1995-latest-to-deliver-aggressive-hikes.html "Britain lifts rates by most since 1995, latest to deliver aggressive hikes") by 25 basis points (bps) to a range of 5.00%-5.25% when it unveils its next rate decision on May 3. The [Fed was too slow to move](https://www.financedigest.com/wait-and-see-u-s-companies-curb-investment-as-they-await-fed-moves.html "Wait and see: U.S. companies curb investment as they await Fed moves"). The transitory story went on for way to long. What the Fed has done since is to catch up – and catch up pretty effectively,” said Dhar. Dhar said if credit conditions tightened enough, the U.S. would slip into a recession in the second [half of the year](https://www.financedigest.com/tods-sales-rise-17-in-first-half-of-year.html "Tod’s sales rise 17% in first half of year"). Fidelity’s Boscher said there would be a visible slowdown in the United States and Europe, with a soft landing for the [economy possible if growth in emerging markets](https://www.financedigest.com/global-fuel-injector-cleaner-market-emerging-economies-expected-to-influence-growth-until-2031.html "Global Fuel Injector Cleaner Market: Emerging Economies Expected to Influence Growth until 2031") and China holds up. Harsher economic conditions and [higher rates have changed priorities for asset manager](https://www.financedigest.com/asset-management-firms-are-using-ai-to-deliver-higher-returns-for-investors.html "Asset management firms are using AI to deliver higher returns for investors") portfolios, both said. [Fixed income has become the asset](https://www.financedigest.com/bitfinex-and-connamara-collaborate-to-release-fix-digital-asset-gateway.html "Bitfinex and Connamara Collaborate to Release FIX Digital Asset Gateway") class of choice, said Dhar. Having surged over 200 bps last year as [inflation and rates](https://www.financedigest.com/russia-could-hike-rates-in-2023-if-inflation-risks-have-big-impact-cenbank.html "Russia could hike rates in 2023 if inflation risks have big impact -cenbank") rose, the U.S. 10-year [Treasury yield](https://www.financedigest.com/world-equities-fall-u-s-treasury-yields-rise-after-hawkish-fed.html "World equities fall, U.S. Treasury yields rise after hawkish Fed") has slipped 20 bps this year as traders position for a weaker outlook. Equities are still an effective hedge, said Boscher, at least compared with [government bonds](https://www.financedigest.com/lg-says-not-a-forced-seller-of-uk-government-bonds.html "L&G says not a forced seller of UK government bonds"). (This story has been officially corrected to [say ‘Fidelity International’, instead of ‘asset managers’, in paragraph 1)](https://www.financedigest.com/efg-international-says-profitability-improved-in-first-nine-months.html "EFG International says profitability improved in first nine months") (Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and Mark Potter) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---