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RESEARCH | 3 POINT PERSPECTIVE | MACRO SHIFTS
Q4 2022 Global Outlook: Gloom, but not doom
Contributors: Ajay Rajadhyaksha & Amrut Nashikkar
15 Sep 2022
Contributors: Ajay Rajadhyaksha & Amrut Nashikkar
15 Sep 2022
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Advanced economies will likely contract in Q4 and have virtually zero growth next year. Our analysts see a deep recession in Europe starting in the fourth quarter, with the economy shrinking over 1% over calendar year 2023. The US should have slightly negative growth as Fed hikes and the dollar surge hit the economy. China should have a small bounce, but far below its 5.5% target; our analysts have taken down 2023 GDP growth by 80 basis points, to 4.5%. And 2022 is turning out to be really weak: our analysts now expect that economy to grow just 2.6%, almost as tepid as in 2020.
All told, the global economy should grow at just 2.2% in 2023. That is a startling come-down from the 6.3% rate in 2021.
Some investors were hoping that central banks might turn more dovish in Q3, following a surprise 75 basis point increase in interest rates from the Federal Reserve in June – its first move of that size in several decades. But the Fed subsequently hiked by 75bp at its July meeting and seems very likely to do the same this month. The European Central Bank then hiked by 75bp in September and noted that further outsized moves were possible. Developed central banks show no sign of hitting the brakes for the rest of 2022.
There is no pivot in sight because consumer prices are still too elevated for comfort. Even if CPI prints moderate in the next few months – and it is possible in the US, with oil prices dropping through the third quarter – the problem is the starting point. Annual US inflation above 8% is simply too high, and the longer it stays there, the more the Fed will worry about high wage expectations getting embedded.
Surging inflation, falling growth, and central banks on the warpath – our analysts think there is little wonder that the macro outlook looks bleak.
The next few quarters are going to be painful, for economies and markets. But for all of the troubles hitting the world, there have been signs of resilience. Jobless rates are still low in the West, and excess savings accrued during the pandemic are cushioning consumption. Services activity in the eurozone has been supported by the weaker currency, while governments across Europe are making concerted attempts to shield consumers from the worst of the energy shock. Despite dire predictions and political upheavals, Italy has avoided a sovereign debt crisis.
Our analysts are still bearish on most risk assets, but they feel as if much of the adjustment has already occurred. They see that there are now more two-way risk for investors, and market narratives could change quickly. We see more gloom than doom.
About the experts
Ajay Rajadhyaksha
Global Chairman of Research
Amrut Nashikkar
Managing Director, Fixed Income Strategy