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Global Economics

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

Global Central Bank Watch

Will frontloading make hard landings less likely?

The pace of policy tightening has increased still further, with many central bankers arguing that rate hikes must be “frontloaded” to tackle inflation risks quickly. In the current environment, this probably does offer the best chance of avoiding a future hard landing for most economies. And given evidence so far that activity is slowing but not slumping as policy tightens, aggressive rate hikes seem set to continue in the near term. But while this policy may reduce the threat from inflation in the medium term, it carries big economic risks in the near term, particularly where household debt is high and house prices are elevated.

4 August 2022

Global Economics Update

PMIs: Weak industrial activity taking pressure off supply

July’s fall in the global manufacturing PMI supported other evidence that the industrial sector is in or close to recession and the forward-looking indicators point to further weakness to come. At least the weakness of demand has caused backlogs of work to ease and suppliers’ delivery times to improve, which should ultimately take some of the pressure off inflation.

1 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