Global Recession Watch – Sentiment rallies; inflation still a threat

Our indicators suggest global economic sentiment is improving despite the impact of higher interest rates, geopolitical uncertainty, and the squeeze on real incomes. Oxford Economics/Penta data indicate the improved sentiment is being supported by strong wage growth and resilient employment.

What you will learn:

• Recession concerns among the major economies have subsided in recent months. Not only has sentiment based on mentions of “recession” improved, but concerns are also less synchronised across the world. This suggests a better chance of a soft landing for the economy.
• Consumers’ relative optimism likely stems from resilience in the labour market. Our employment and, in particular, our wage sentiment indicators have stayed fairly strong in early 2023.
• While this is good news for the health of household finances, it also suggests that inflation could be more persistent in the first half of 2023 than expected, which will keep central banks on high alert. If the shift in sentiment is borne out by less-timely official data, it will keep central banks focussed on the risks from persistent inflation and the need to keep policy restrictive.