Australia averts recession but not slowdown: JPMAM

Australia's economy will take a hit at the fallout of the Middle East conflict, but the good news is it will avoid a recession, J.P. Morgan Asset Management predicts.

The asset manager downgraded Australia's annualised growth rate from 2% tipped at the start of the year before the breakout of the Israel-US attack on Iran to now just 1.5%.

J.P. Morgan Asset Management global market strategist Kerry Craig explained the impact is already materialising in the economy with "data starting to soften."

This is seen in the housing market and household spending numbers. On top of this, recent inflation numbers show a 4.6% year on year increase to March - close to the 5% headline figure many were anticipating.

"That's going to stoke a lot of concern around a great stagflationary environment in Australia," he told a media briefing in Sydney.

However, Craig is optimistic Australia will not fall into a recession and will even weather through its heavy reliance on oil and refined products.

"There's good momentum here in the economy. We're not thinking about that recession," he said.

"We think that the market pricing for RBA rate hikes are a little bit too aggressive, because we think some of that momentum would be coming out of the economy that the RBA doesn't have to respond to."

The fund manager is expecting just one rate hike at the upcoming meeting on May 5. In the US, it predicts the Federal Reserve will potentially cut rates this year rather than increase them.

Europe and parts of Asia, meanwhile, may not fare as well.

"Europe is the one that we worry about the most. Growth forecasts there have been revised downside to under 1% growth for this year, whereas the US is still at 2%," Craig said.

China is proving to be resilient and shrugging off the headwinds.

"We think the Chinese story is pretty good. It's resilient. We expect more monetary policy and fiscal stimulus there. We like the China tech story as well," he said.

The Korean and Taiwan markets also appear to be doing very well.

"There are some pluses and minuses across how we view the economies versus the markets around the world," he said.

"[It] does seem like the ASEAN countries are the ones that are probably going to be at the lower end [in terms of] economic consequences and not having the same composition as a market benefit some of these big secular things that are coming through."