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8 questions about the Russia-Ukraine crisis

This Update answers eight key questions for economies and markets in light of the escalation in the Ukraine conflict overnight. All clients are invited to a Drop-In at 14.00 GMT/09.00 EST when our panel of senior economists will discuss these issues and answer any further questions. In view of the wider interest, we are making this Global Economics Update available to all clients.
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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

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

More from Global Economics Team

Global Economics Chart Book

Weak start to 2022 won’t deter monetary tightening

While data from the past month have been consistent with global economic activity picking up some pace towards the tail end of 2021, timely data point to a weak turn of the year as the Omicron wave took its toll. For example, virus caution and government restrictions, in concert with rising goods prices, caused real retail sales to fall in all advanced economies in December. And business surveys suggest that services sector activity took a sizable hit in January. However, the manufacturing sector got off more lightly, and the big picture is that with Omicron waves in remission in much of the world, and restrictions either easing or soon to ease, disruption is likely to prove short-lived. Indeed, high-frequency data already reveal a recovery in the past couple of weeks. Central banks were already focussing more on taming above-target inflation than supporting recoveries in real economic activity. But with the downside risks to growth from Omicron soon to pass, the latest virus wave will not get in the way of policymakers tightening the screws.

11 February 2022

Long Run Economic Outlook

Higher inflation to persist and real rates stay negative

Recent developments have supported our view that the pandemic will not do much permanent damage to the level of GDP in most countries, especially developed markets. Nonetheless, it will accelerate some of the structural trends that were already set to weaken the long-term growth prospects of emerging markets, including China. Accordingly, we expect global GDP growth to ease from the recent trend of around 3.5% to 2.5% by 2050 and we do not see China overtaking the US as the world’s largest economy. Meanwhile, even once the temporary factors pushing up inflation in developed markets wane, we think that it will settle at a higher rate over the next few decades than in the previous one. While real short-term rates will rise in the coming years, we expect them to stay below zero in major DMs throughout this decade at least.

10 February 2022

Global Economic Outlook

Growth to disappoint, but rates will rise regardless

Global growth will be slower this year than last and we expect outturns in major economies including the US and China to be below consensus forecasts. The US economy will be hindered by persistent labour shortages and reduced policy support while China will suffer from a slowdown in export growth and further weakness in the construction sector. Headline inflation is very likely to fall, but we expect core inflation to remain elevated across the developed world as shortages persist and wage growth picks up. Accordingly, most central banks are set to raise interest rates, although China will be a notable exception.

25 January 2022
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