September 15, 2022

The Forward View – Global: September 2022

Economic outlook weakens as central banks continue to tighten.


  • Financial markets remained volatile into early September. Market expectations of central bank rate increases have generally moved higher in recent weeks –particularly for the ECB, which hiked rates by 75 basis points at its September meeting.
  • Similarly, we still expect that the Fed will raise the Fed funds rate by 75bps at its meeting next week. However, we have revised higher our expectation for the peak fed funds rate for this cycle –we now expect a target range of 4.00-4.25% (3.50-3.75% previously) by early 2023. This change to the call means there is downside risk to our US growth forecast, which we will review in our next US Economic Update. This may have implications for when the Fed may start cutting rates if, as expected, inflation gradually falls back towards target and unemployment rises, but for now we retain our view that this won’t occur until 2024.
  • A range of indicators are pointing to potentially softer inflation in coming months. Producer prices –while still increasing at strong double digit rates –are now off their peak growth rates. Freight costs for container ships travelling from China to the United States and Europe have fallen significantly, while global food prices have fallen from peaks in April. Despite mixed trends in energy markets, oil prices are well below recent peaks.
  • Overall, we see global economic growth slowing to 2.3% in 2023 –which excluding the extreme shocks of the global financial crisis and initial COVID-19 wave would be the weakest rate of growth since 1993. Given the rapid slowdown in activity, several advanced economies are at a heightened risk of recession in 2023 (should they not enter recession in late 2022). While we expect stronger growth in 2024 –2.8% –this remains well below the long run average of 3.4% (from 1980 onwards).
  • A broad range of risks continue to present uncertainty around our global forecasts. Should inflation persist as economic activity slows, central banks may lift rates to the point where a severe downturn becomes likely. The Russia-Ukraine conflict continues to drag onwards, while measures of supply chain pressures are easing, they remain historically strained and could face continued risks due to China’s zero-COVID public health policies.

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