Overview

• Tighter financial conditions are impacting activity in advanced economies, with spill-overs to emerging markets (via financial market, currency and trade channels). Financial markets have been volatile in recent times, reflecting shifting market expectations around central bank policy rates given competing forces of persistent inflation and slowing economic growth.
• It remains too early to suggest that inflationary pressures have subsided – with data available to June showing global consumer prices continuing to accelerate, up by 8.7% yoy (from 8.2% yoy in May) – although recent oil price falls (if sustained) will provide some downwards pressure. Among the largest advanced economies, consumer prices in June rose by the fastest pace since mid-1982. Global producer price growth has slowed marginally from peaks in April but remains close to 18% yoy. This suggests ongoing risks that central banks to continue to lift rates above market expectations.
• We now forecast the global economy to expand by 3.0% in 2022 (down from 3.2% previously) before slowing to 2.5% in 2023. Several advanced economies are at heightened risk of recession either later this year or next year. This rate of growth is well below the long run average (3.4% from 1980 onwards) and, outside of the extreme shocks of the global financial crisis and COVID-19 lockdowns, represents the weakest rates of growth since 2001.
• There remain a range of factors that present uncertainty around our forecasts. The Russia-Ukraine conflict has persisted for almost six months – considerably longer than initially anticipated – and continues to threaten supplies of energy, grains and other agricultural products. COVID-19 continues to spread, with the ongoing potential of mutations into variants with greater transmissibility and ability to reinfect – presenting risk to global supply chains. Tensions between the United States and China could intensify, following House Leader Nancy Pelosi’s visit to Taiwan. In response, China has stepped up military exercises near Taiwan, potentially disrupting trade in the region. Finally, with inflation persisting at high levels, while growth is slowing, there is a risk of policy mistakes by central banks that could drive global growth lower.

For further details, please see The Forward View Global (August 2022)