What's on the horizon for the global economy?
Our weekly updated overview highlights the key releases of global economic market data from around the globe and provides an economic outlook for the rest of 2022 by region.
- In our Week Ahead podcast we are discussing the main themes that will drive Global markets.
- Our updated calendar identifies the top events that should be on your radar this week.
- We also provide an outlook overview region by region for the rest of the year.
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Our view in a nutshell
Japan
- The post-pandemic resumption of economic activity in Japan may soften the impact of a recession in the US.
- Elevated international commodity prices will make core inflation exceed the 2% threshold, at least temporarily.
- We do not expect any changes in monetary policy, as the BOJ is unlikely to judge inflation over 2% as sustainable.
- The key risk to our view is destabilizing global financial markets from tightening financial conditions along with US recession.
Asia
- Reopening is a near-term growth offset, but a synchronized global growth downturn will short circuit Asia’s recovery.
- We expect the export downturn to deepen, tighter financial conditions to weigh on capex and see a mixed outlook on consumption.
- Higher commodity prices should benefit Malaysia and Indonesia, but Thailand, India and the Philippines are relative losers.
- CPI inflation is likely to rise further in Q3, due to lagged pass through from food and energy prices, but should moderate from Q4.
- We expect further monetary policy tightening in the region, but now expect a lower terminal policy rate and rate cuts in H2 2023.
- Korea: We expect a recession to begin in Q3 2022, which will result in the end of the BOK’s hiking cycle at a terminal rate of 2.50%.
- India: Elevated inflation and steady growth call for further rate hikes to a terminal repo rate of 6.0%.
- Indonesia: The central bank is falling behind the curve with inflation now above target, adding to FX stability risks.
- Australia: We expect a slide into recession from Q1-2023, as rate hikes bite. As inflation slowly cools, we forecast rate cuts from Q3-2023.
China
- Shanghai’s reopening, funding cuts for regular PCR testing and tighter inspection of improper PCR testing could provide a respite.
- However, we do not view this as a turning point, due mainly to Beijing’s reluctance to transition away from its zero-Covid strategy.
- Other major headwinds include the burden of regular PCR testing, a prolonged property contraction and an inevitable export slowdown.
- Most new stimulus will be entirely used to fill the vast funding gap, while Beijing will likely stick with the ZCS until March 2023.
United States
- With growth momentum rapidly decelerating, we expect a recession to begin in Q4 2022, with risk of an earlier start.
- We expect an additional 50bp hike in September and 25bp in November and December and February 2023.
- After holding rates at a restrictive 3.50-3.75%, 25bp cuts per meeting are likely starting September 2023, to 0.875% by end-2024.
- Near-term labor market strength may persist, but we expect job losses in Q1 2023 and a 5.9% unemployment rate by end-2024.
- Inflation will likely remain elevated before moderating more notably in 2023; we see balanced risk around our forecast.
- High inflation and divided government will likely prevent policy support from both monetary and fiscal authorities.
- Notable risks include an earlier recession start, unanchored inflation expectations and corporate debt market stress.
Europe
- The euro area is highly exposed to Russia/Ukraine. As a result we see a recession in H2 2022 and H1 2023.
- Despite this, global price pressures are set to keep European inflation well-above target for some time to come.
- After the ECB’s 50bp initial hike we now see 50bp in Sep & Oct, then 25bp hikes. Hiking ends in Feb 2023, cuts thereafter.
- The UK is less exposed to Russia/Ukraine than the euro area, but still we now see a recession as unavoidable.
- After rising further this autumn due to an increase in the energy price cap, we see inflation falling meaningfully in 2023.
- We see the BoE hiking another 50bp in September and 25bp in November, then 2x25bp cuts in May and August 2023.
For more information read our weekly report here
Contributor
Aichi Amemiya
US Economist
George Buckley
Chief UK & Euro Area Economist
Ting Lu
Chief China Economist
Takashi Miwa
Chief Japan Economist
Rob Subbaraman
Head of Global Macro Research
Sonal Varma
Chief Economist, India and Asia ex-Japan
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