The Dow Jones industrial average plunged more than 1,000 points on Thursday.
Brendan Mcdermid | Reuters
Stock markets are poised for stronger selling this summer as central banks around the world raise interest rates to try to combat spiraling inflation, according to an economist.
Brunello Rosa, who is CEO and head of research at Rosa & Roubini, a consultancy he co-founded with well-known market bear Nouriel Roubini, believes that central banks will come with much more monetary tightening and more bad news on economic activity. .
“Now is the time to once again appreciate the economic fundamentals around the world in terms of growth,” he told CNBC’s “Street Signs Europe” on Friday.
“It’s hard for markets to be totally optimistic when inflation is rising, growth is slowing and interest rates are rising rapidly around the world.”
The Dow Jones Industrial Average fell more than 1,000 points on Thursday and the Nasdaq Composite fell nearly 5%, erasing a rally on Wednesday. Initial relief over the US Federal Reserve’s decision to rule out more aggressive rate hikes has apparently given way to fears that a strong cycle of rate hikes to rein in red-hot inflation could hurt economic growth.
Rosa said investors initially welcomed the news that a 75 basis point hike is off the table, but warned that this means there will be several 50 basis point hikes in the coming months. She also said the Bank of England is the only central bank currently realistic, after policymakers in London warned on Thursday of recession risks facing the UK economy.
“Clearly all of them [central banks] they are talking tough at this stage. But the reality is that many adjustments will eventually lead to economic contraction,” he said.
“In the euro zone and in the US they don’t realize that there will actually be some kind of contraction in economic activity,” he added later.
Rosa said he expects the war in Ukraine to last much longer than many market participants anticipate, adding to other headwinds such as supply chain problems, soaring inflation and rising interest rates.
The pan-European Stoxx 600 fell 1% on Friday morning, following the sell-off on Wall Street, and the benchmark is down more than 11% year-to-date. In Asia on Friday, Hong Kong’s Hang Seng Index led the region’s losses, falling 3.81%. In mainland China, the Shanghai Composite fell 2.16%, while the Shenzhen Component lost 2.14% to 10,809.88.
— CNBC’s Elliot Smith contributed to this article.