Key points
- Our global outlook was more pessimistic than consensus at the start of this year but weakened materially after the Ukraine invasion. Consensus has converged towards our view in recent months
- We lower our forecasts modestly for the US, more for China and rebalance them in the Eurozone for a weaker 2023. We do not see recession as an inevitable outcome, but it is a risk in the US and even closer across Europe
- Inflation continues to rise as the war impacts food and energy prices, which risks spilling further into the summer
- But domestic developments dominate our long-term inflation outlook. Wages are rising in tight labour markets. Industrial action in several economies will exacerbate this trend. While highly visible price increases also risk dislodging longer-term inflation expectations
- Fears around expectations have spurred central banks to more forceful rate increase – a shift that has tightened financial conditions materially. The avoidance of recession will in part hinge on the scale of tightening from here