Economics Inflation Volatility White Paper

Global Macro Outlook - Third Quarter 2022

June 30, 2022
2 min read

What You Need to Know

The global economic outlook deteriorated sharply in the second quarter and markets are increasingly concerned that higher rates will lead to a recession. This outcome isn’t a certainty, but the probability of slower or negative growth has increased materially as inflation has stayed high.

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Key Forecast Trends

  • We have upgraded inflation forecasts—and downgraded growth—and now expect global GDP to expand at a rate well below potential in 2023.
  • Regardless of whether the economic slowdown meets the technical definition of a recession, the next few quarters aren’t going to feel good.
  • Although we believe that there is still a path to a soft landing, we think the path gets narrower with each passing month of high inflation.
  • Once inflation moderates—which we expect eventually—central banks can worry more about growth, as long as inflation expectations remain anchored.
The Global Cycle for 3Q:2022
The Global Cycle for 3Q:2022


 

Forecast Overview

Key Assumptions
 

  • Geopolitical: The war in Ukraine is likely to keep commodity prices elevated for some time.
  • COVID-19: Caseloads may wax and wane, but we do not expect widespread economic disruption.
  • Fiscal policy: European fiscal policy may mitigate some downside risk from the war.
  • Monetary policy: Rates will move higher and faster than previously anticipated.

Central Narrative
 

  • Global growth: Challenged consumers have to allocate more money to commodity-based essential goods and reduce discretionary spending.
  • Inflation: Rising commodity prices will push inflation higher and keep it there for longer.
  • Yields: Tighter monetary policy will push yields up and flatten yield curves.
  • USD: With most major central banks now moving toward higher rates, we believe the dollar is likely to move broadly sideways against most other currencies.

Key Assumptions
 

  • Lower commodity prices—either due to demand destruction or geopolotical events, could ease the pressure on inflation.
  • A fuller reopening in China could help global supply chains heal.

Key Downside Risks
 

  • Tighter monetary policy could have a larger-than-expected impact on growth.
  • Spillovers from poor financial market performance could impede growth.

Past performance, historical and current analyses, and expectations do not guarantee future results. There can be no assurance that any investment objectives will be achieved. The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This document is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor’s personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service sponsored by AB or its affiliates.

The views expressed herein do not constitute research, investment advice, or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

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