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Northwestern Mutual Wealth Management Company Chief Investment Officer Brent Schutte joins Yahoo Finance Live anchors to discuss inflation fears, CEO worries, recessionary pressures, the state of the market, and the outlook for the economy.
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This is the most well-telegraphed recession,’ strategist says

As the global economy continues to grapple with the impact of the ongoing COVID-19 pandemic, economists and strategists have been closely monitoring its various consequences. With many predicting an impending economic downturn, one strategist believes that this recession has been the most well-telegraphed in recent history.

A recession refers to a significant decline in economic activity, typically characterized by a contraction in the GDP (Gross Domestic Product) over two consecutive quarters. Recessions can result from a variety of factors, including financial crises, commodity price shocks, or, in this case, a global health crisis.

Mohamed El-Erian, Chief Economic Advisor at Allianz, recently claimed that this particular recession has been highly anticipated and is perhaps the most well-telegraphed in history. He argues that the factors leading up to this economic downturn were evident even before the pandemic hit. As a result, decision-makers and individuals had sufficient time to prepare and react accordingly.

El-Erian points out several indicators that signaled an imminent recession. First and foremost was the excessive build-up of debt on a global scale, particularly evident in both developed and emerging markets. The years leading up to the pandemic were characterized by a rapid increase in corporate and sovereign debt, topping previous records. This unsustainable debt burden made the global economy increasingly vulnerable to a shock like COVID-19.

Another factor highlighted by El-Erian was the rising number of struggling companies and industries. Prior to the pandemic, many sectors faced significant challenges, such as the retail industry grappling with online competition and the decline of brick-and-mortar stores. Additionally, numerous companies were experiencing financial difficulties due to mismanagement, high costs, or excessive leverage. These issues were already weighing on the economy and were exacerbated by the pandemic.

Furthermore, the threat of an economic downturn was compounded by geopolitical tensions and trade disputes. The trade war between the United States and China, for instance, caused significant disruptions to global supply chains and dampened business sentiment. Such tensions had already set the stage for potential economic troubles even before the pandemic emerged.

One could argue that this well-telegraphed recession highlights the importance of attentiveness and preparatory measures. Decision-makers, policymakers, and individuals must be alert to signs of an approaching downturn so that they can take appropriate actions. By acknowledging and addressing issues like excessive debt, industry challenges, and trade conflicts proactively, economies can reduce the severity of the economic fallout.

However, despite the expectation and preparation, the COVID-19 pandemic brought an unprecedented scale of disruption. Governments worldwide were compelled to implement lockdown measures and restrict economic activity to contain the spread of the virus. These measures significantly impacted businesses, resulting in layoffs, bankruptcies, and a severe decline in consumer spending.

While the recession may have been well-telegraphed to some extent, the depth and speed of the downturn took many by surprise. Governments and central banks responded with unprecedented fiscal and monetary stimulus measures to mitigate the economic damage. These measures aimed to support businesses, protect jobs, and ensure financial stability.

As the world cautiously emerges from the pandemic, economists and strategists are now focusing on the shape and speed of the recovery. While uncertainties remain, it is evident that the well-telegraphed recession has demonstrated the importance of recognizing early warning signs and the need for preparedness in order to mitigate the economic impact that crises can bring.