Key takeaways
- The war in Ukraine is contributing to the biggest commodity price shock in decades, adding to already significant inflation pressures and need for vigilant central bank tightening.
- Yet near-term economic growth will continue to be supported by pent-up demand, savings, and the re-opening of economies, benefiting especially service sector activity.
- However, substantial monetary policy tightening will increasingly weigh on economic growth, prompting a mild recession in the US around Q2 23, spilling over to other western economies and EMs later next year.
- Recovery in the Chinese economy in 23 will mitigate some of the setback, but still we expect unemployment to rise in the US and later in other western economies.
- The risk is skewed toward an earlier recession given the scale of financial tightening and erosion of purchasing power from high inflation.
