News & Insights

Investors remain convinced that inflation is likely to come down without much of a hit to economic growth. However, there is not much historical precedent for such an outcome, especially since monetary tightening is not completed, and the effects of higher policy rates are yet to be felt completely.

Recent surveys have hinted at a slowdown in economic growth, but underlying inflation is proving more persistent, pressuring central banks to hike rates further. Yet, how tightening credit conditions interact with already restrictive monetary policy stances is a key uncertainty.

While tracking a firmer pace than feared in Q1-23 GDP, incoming reports suggest much of the strength can be attributed to China. Meanwhile, central banks have continued their tightening campaign amid stubbornly firm wage growth and sticky core inflation. Will they continue until something breaks?

The global economy started the year on a firmer note than feared. Yet, core inflation is still stubbornly high while banking sector woes make it clear that the most aggressive tightening cycle in decades is taking its toll. Correspondingly, central banks will have to balance the risks between price and financial stability.

Despite cautious central bank communication about the policy outlook, particularly in view of the persistent strength of labour markets, investors were expecting rate cuts in the second half of 2023 amid a fall in global inflation. Yet, recent macroeconomic data has poured cold water on their quick disinflation sanguine view.

Investors strongly believe that central banks are almost finished with their tightening campaign amid a fall in global inflation, and that policy rates will be lowered as soon as the second half of 2023. Still, uncertainty around this Goldilocks scenario remains elevated.

As expected, a fall in global inflation is underway, but labour markets remain tight. Correspondingly, the dilemma for central banks has become extensively complex.

The world economy continues to face strong headwinds. Markets remain hopeful that central banks will soon pause the tightening campaign and give economic activity a breather, although the stubborn persistence of inflation could dampen those hopes.

Global economic growth is faltering markedly and indicators point to an extended period of subdued growth. Although easing bottleneck pressures points to a material drop in inflation during the second half of 2022, will this be enough to calm central banks?

World GDP likely shrunk in Q2 2022 – for the first time since the 2020 pandemic related decrease – owing to economic downturns in China, Russia and the US. Is bad news truly good news?

The current challenge for central banks is to restore low and stable inflation, while preserving financial stability and averting a recession. A task that looks less likely now than a few months ago.

Investors still hope the Goldilocks scenario of moderating inflation and supply-led growth will emerge in H2 2022, although the recent trends in bottlenecks and the labour market call for caution.