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Global Economics

Global Economics Update

What recessions mean for the labour market

Given that unemployment rates have usually risen significantly in recessions, it is tempting to conclude that history is about to repeat itself, to the frustration of policymakers seeking soft landings in labour markets. But the pandemic has produced uncertainties that raise the possibility of jobless rates not rising too far.

15 August 2022

Global Economics Chart Book

Not all price pressures are easing

There have been growing signs that we are at the turning point in global inflation. Commodity prices and shipping costs are down both in y/y and level terms, while product shortages have alleviated as softer demand and fewer bottlenecks have opened up spare capacity. And, in the past week, we received the US CPI print for July, which showed that headline inflation there fell by more than the consensus expected. However, central banks won’t take too much comfort from all this just yet. While headline inflation is set to fall sharply in the year ahead, red-hot labour markets and elevated inflation expectations mean that underlying sources of inflation remain intact. Slowing economic growth and tighter monetary policy should help resolve this problem. In fact, the past month’s data showed that activity is already bending under the weight of higher interest rates and multi-decade-high inflation. But it is still far too early to be confident that inflation will settle around target rates in two years’ time. So, our sense is that investors have gone a bit too far in anticipating a major shift in – particularly Fed – policy in the next 6-12 months.

12 August 2022

Emerging Asia Economics Update

How much does Taiwan matter?

Taiwan matters far more to the world economy than its 1% share of global GDP would A further escalation in cross-strait tensions that cut Taiwan’s export off from the rest of the world would lead to renewed shortages in the automotive and electronics sectors and put further upward pressure on inflation. In view of the wider interest, we are also sending this Emerging Asia Economics Update to clients of our Global Economics Service.  

8 August 2022

Our view

The global economy is on course for weaker growth, high inflation, and tighter monetary conditions. The world’s largest economies will all suffer for different reasons – policy restraint in China will preclude anything more than a muted recovery from its recent Omicron wave, higher interest rates will weigh on interest-rate-sensitive spending in the US, and the cost-of-living squeeze will take its toll in Europe, where recession risks are highest. Inflation still seems set to fall, albeit from a higher level than envisaged before the war in Ukraine. Indeed, we expect commodity prices to fall, goods price pressures to ease, and base effects to cause big falls in headline rates by the turn of the year. But tight labour markets and strong underlying price pressures will be enough to keep central banks on track to deliver the most aggressive tightening cycle in three decades. This should cause global growth to slow to below trend, rather than trigger a deep downturn. But the risk is that inflation stays higher for much longer, causing policymakers to hike rates well beyond neutral levels.

Latest Outlook

Global Economic Outlook

Recession threat broadens

The outlook for the world economy has darkened again and we have reduced our forecasts for all major economies, leaving them further below the consensus of economists. We now anticipate recessions in the euro-zone and the UK and expect the US, Canada and Australia to avoid economic contraction only narrowly. If a technical “global recession” is avoided, this will be largely thanks to a moderate post-COVID rebound in China and relative economic strength among the major commodities producers. Inflation is likely to prove more persistent than in the recent past, so the widespread and aggressive monetary policy tightening cycle has further to run. But this will add to headwinds to growth and ultimately force several central banks to reverse course in 2024 or even before. We’ll be discussing the key takeaways from this report in a Drop-In on Wednesday, 27th July. Sign up now to join the discussion. Register here. Drop-In: Global Economic Outlook – Recession Threat Broadens Wednesday, July 27, 2022 at 03:00 PM British Summer Time.

21 July 2022