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Global Macro Outlook Q3 2022: Navigating the gathering storm

Macroeconomic Strategy Team

7 July 2022

The question many investors are asking is whether the worst start for global markets in decades is behind us. Yet, as we enter the final half of 2022, the macroeconomic outlook remains extremely challenging, characterized by high inflation, weaker economic growth, and tighter financial conditions. While our base case is that inflation will ease into 2023, at this point in time, we find ourselves preoccupied with emerging risks to that view.

In H2 2022, we expect to see a recession in the euro area, a weaker-than-expected economic recovery in China, and a material economic slowdown in the United States (a recession in early 2023 seems likely at this point). In this edition of Global Macro Outlook, we'll find out how shifts in the macro backdrop could affect the global economy and where resilience can be found, key highlights are:

Hawkish central banks

The U.S. Federal Reserve (Fed) and the Bank of England, among others, have indirectly indicated that they will knowingly hike into a material growth slowdown to tamp down inflation. This will have an important negative impact on global growth.

Inflation: sticky food and energy prices

Even as COVID-19-related supply chain issues ease and higher interest rates begin to curb consumer spending, the surge in energy and fertilizer prices points to intensifying food price inflation ahead.

Little reprieve for emerging economies

The top three destinations for emerging-market (EM) exports—China, Europe, and the United States—are likely to experience a significant slowdown in growth. Demand for their products are likely to ebb, compounding the pressures of capital outflow.

The end of central bank puts?

Since the global financial crisis, markets have come to expect the Fed (and/or other central banks) to step in to limit declines in asset prices beyond a certain threshold. A rethink, we believe, is required.

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