Global Recession Watch – Teetering on the edge of global recession

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. We expect a global recession to be avoided, but a sustained and substantial improvement in growth also seems unlikely.

What you will learn:

• After Q2’s GDP contraction, we expect a temporary post-lockdown bounce in China’s economic activity to push global GDP growth back to a solid rate in H2 (Chart 1). But this will mask a further slowdown in advanced economy growth, with the US and large swathes of Europe likely to see mild recessions as Fed tightening and the energy crisis bite.
• There are some grounds for cautious optimism that growth may pick up in H2 2023. Some of the major growth drags on activity from 2022, such as supply chain bottlenecks, are expected to fade.
• But it is hard to see what the catalyst for a robust economic recovery will be. In China, the traditional policy stimulus levers have become less effective and policymakers are less inclined to pull on them hard. In contrast to much of the 2010s, China can no longer be relied upon to act as a global spender of last resort.