Saarah Ghazi 
Our baseline economic outlook now assumes a mild US recession in the first half of 2023. Despite moderate improvement in gas prices, core inflation remains stubbornly persistent and broad-based across goods & services. The Federal Reserve has indicated it will act aggressively and raise interest rates until inflation is brought down.
Concerns about energy security and extreme weather events support the case to accelerate the development of renewable sources of energy and pursue further action against climate change. COP27 is expected to build on the momentum generated by COP26, but progress has been underwhelming.
We continue to believe the global economy will narrowly avoid a recession, despite expecting the US, Canada, and most of Europe to fall into recession at some point over the next year or so.
Businesses continue to downgrade their expectations for the global economy, based on our latest survey of risk perceptions. On average, respondents judge there’s a 47% probability of a global recession over the next 12 months.
Odds of a downturn in Canada have just crossed a tipping point and we now expect a moderate recession starting Q4 2022. The slump is mainly due to the impact of more aggressive rate tightening by the Bank of Canada, higher inflation for longer, and weaker external demand from looming recessions in the US and other advanced economies.
Brazil’s October presidential election will likely be decided in a runoff between two arch-rivals: the far-right Jair Bolsonaro and left-wing Lula da Silva. But despite their very different economic programmes, neither will be able to lift Brazil out of the middle-income trap.
Though global recession fears are mounting, our newly developed emerging markets activity trackers show most EMs are now outperforming compared to their historical economic activity growth. China remains an exception, with activity still sub-par.
A cold winter in Europe would require drastic cuts in gas consumption – consistent with hard rationing – in Germany and Italy. We assume gas supplies will be down by 20% y/y in peak season (October-March) due to the inability to fully compensate for the stop to Russian pipeline gas flows.
Supply chain conditions in the US improved in August. Transportation strains eased as shipping gridlocks loosened, inflation pressures declined, labor market dynamics improved, and moderating demand put less stress on the economy’s productive capacity.
Sky-high gas prices and aggressive monetary policy tightening have pushed the global economy to the brink of a late 2022/early 2023 recession – defined as two quarters of falling per capita GDP.
One of the key expected outcomes from the upcoming COP27 summit in Egypt is for earnest
action to be taken by global climate leaders to close the enormous funding gap that is restraining
the ability of African countries to transition to low-carbon economies. In doing so, it is pivotal for
decision makers and investors to appreciate the continent’s role in climate change and the
distinct dissimilarities between countries.
Argentina’s best shot at keeping its IMF deal afloat, regaining market access, and repaying bondholders is by boosting its forex reserves. But given domestic overheating, it finds its current account surplus dwindling, making a currency devaluation inevitable in the medium term.
The UK government’s energy price guarantee will mean a much lower peak for inflation, reducing the damage to household incomes. We think this will be sufficient to avoid a deep recession.
We think the REIT market has overcorrected despite the headwinds from higher energy prices and inflation this winter. Global REIT implied yields currently suggest a GFC-level downturn, which is not consistent with our baseline macro or direct real estate market view.
South Africa faces a serious risk of being ‘grey listed’ by the international Financial Action Task Force (FATF), which will cause irreplaceable damage to the country’s reputation and credibility as an integral link in the global financial system.
Metros that are home to a large share of headquarters saw higher growth in headquarter-specific jobs than in other sectors. But while some have thrived, most metros known for their large headquarter companies have generally trailed the US on total job and GDP growth.
Global commercial property prices were barely affected by the pandemic despite the fall in output and changes in the structure of the economy, such as the heightened demand for goods over services and increased home working. But higher interest rates in the wake of the pandemic are changing this picture and bringing a belated impact back to commercial property markets. High debt costs suggest a pricing correction is needed, with US industrial real estate to move 13% lower and European office properties 12.5% lower according to our estimates, based on the best buildings in gateway markets.
The global economic outlook has continued to deteriorate. Since our previous global scenarios were released three months ago, we have revised down our baseline forecast for world GDP – and subsequently, our near-term outlook for commercial real estate. The risk that the global economy will slip into recession next year has risen and so has the risk of a protracted period of stagflation.
Inflation is sufficiently elevated globally that even a month without any increase in prices still leaves inflation in most economies above 5% by year-end 2022. Moreover, price pressures are so rife across goods and services that a rapid return to price stability is unlikely. Still, policy tightening is working: The US and UK are seeing core inflation fall, with further drops expected.
The BoE today announced a 50bp rise in Bank Rate to 1.75%, despite publishing a forecast that suggests the UK is heading into a recession that will produce a significant degree of spare capacity and cause inflation to eventually fall well below the 2% target.
