There will be recessions across the major economies within the next two years and investors should prepare for it. This is the base case Jeremy Lawson, Chief Economist at abrdn, draws.

“Most economies are operating well above their capacity. Inflation is very high. Not just headline rates, not just because energy and food price inflation is high, but across the board,” says Lawson in abrdn’s mid year outlook. He sees the risks already materialising in some countries and sees Europe as the major economy going into recession first. “It may take a little bit longer in the United States and some other advanced economies.”

Lawson further points out that there will be important differences across the global economy: “The Chinese economy, which has been very weak over the last 12 months, is likely to be picking up speed, not boom times, not enough to rescue the global economy, but certainly a very different outlook.”

Richard Dunbar, Head of Multi-Asset Research at abrdn, suggests to set up portfolios for the cautious central case, “but also ensure some exposure to things that would benefit from the rosier outcomes that might come if that central case is wrong.”

Watch the full outlook here.