Stagflation risk rising amid divergences prices
Policy mix: in search of a new balance
Geopolitical shock waves & political noise
EM and China: fragmentation has increased further
The policy mix will need to find a new balance as most DM CB have embarked on rate hiking cycles or will start soon, removing the Covid-19-era policy accommodation. Fiscal deficits will fall but should remain above pre-pandemic levels. Cooperation between monetary and fiscal policy will also be required to address the issue of debt sustainability.
Policy mix: in search of a new balance
Stagflation risk rising amid divergences prices
Global economy is slowing, due to the fallout from the Russia-Ukraine war, supply bottlenecks and China’s zero-tolerance Covid-19 policy. CBs will tighten financial conditions to tame persistent inflation. A global recession is not our main scenario, but there are areas of strong vulnerability such as Europe, areas for attention such as the US consumer, and potential sweet spots such as China in H2.
Geopolitical shock waves and political noise
The war in Ukraine will have long-lasting consequences on the global geopolitical landscape and international alliances. A likely political gridlock in the United States following the US mid-term election would challenge US geopolitical power and lower the potential to deliver on the fiscal front. Short term, this could put some less market friendly reforms on hold, which would be positive for markets.
The Russia-Ukraine war will exacerbate divergences further. Accordingly, the CB response will vary worldwide. Commodity exporters and countries with policy room are favoured. China’s economy is close to a turning point due to its policy accommodation, but is still impacting some Asian countries.
EM and China: fragmentation has increased further
Policy mix: in search of a new balance
The policy mix will need to find a new balance as most DM CB have embarked on rate hiking cycles or will start soon, removing the Covid-19-era policy accommodation. Fiscal deficits will fall but should remain above pre-pandemic levels. Cooperation between monetary and fiscal policy will also be required to address the issue of debt sustainability.
Global economy is slowing, due to the fallout from the Russia-Ukraine war, supply bottlenecks and China’s zero-tolerance Covid-19 policy. CBs will tighten financial conditions to tame persistent inflation. A global recession is not our main scenario, but there are areas of strong vulnerability such as Europe, areas for attention such as the US consumer, and potential sweet spots such as China in H2.
The war in Ukraine will have long-lasting consequences on the global geopolitical landscape and international alliances. A likely political gridlock in the United States following the US mid-term election would challenge US geopolitical power and lower the potential to deliver on the fiscal front. Short term, this could put some less market friendly reforms on hold, which would be positive for markets.
Geopolitical shock waves and political noise
EM and China: fragmentation has increased further
The Russia-Ukraine war will exacerbate divergences further. Accordingly, the CB response will vary worldwide. Commodity exporters and countries with policy room are favoured. China’s economy is close to a turning point due to its policy accommodation, but is still impacting some Asian countries.
Inflation is back, and it’s everywhere
Inflation is not just another news headline. From the grocery store to the gas station, everyone has been confronted by the stark reality of higher and higher prices.
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