Schroders Australia is cautioning investors that markets are underestimating the potential for a sharp economic slowdown in the United States. Kellie Wood, the head of fixed income at Schroders Australia, voiced concerns that current market valuations do not adequately reflect weakening demand and other concerning economic indicators. Schroders is a global asset management firm offering a range of investment strategies and solutions to institutions, intermediaries, and individuals worldwide. Schroders manages investments across various asset classes, aiming to deliver sustainable value for its clients.
Wood addressed investors at a national briefing in Sydney, stating, “I’m probably the most bearish in our team on the outlook for the US.” She anticipates a return to trend growth of approximately 1 to 1.5 per cent, a scenario she believes is not currently factored into equity and credit prices. Recent data, including declines in manufacturing and services activity coupled with shifting business sentiment, points to a loss of economic momentum.
Adding to these concerns, Wood highlighted the potential impact of rising tariffs on both economic growth and inflation. “The average tariff rate has jumped from 2 per cent to 17 per cent this year,” she noted. She estimates that this increase could reduce growth by about 0.8 percentage points and simultaneously increase inflation by around 1.5 percentage points. This combination of slower growth and higher prices poses a challenge for the US economy.
Furthermore, Wood expressed reservations about the outlook for US debt, particularly as investors may demand higher returns to hold Treasuries. She cited an instance where investors appeared reluctant to accept what they deemed insufficient compensation for lending to a government with a high debt-to-GDP ratio. This suggests increasing scrutiny and potential instability in the US debt market.