Global Risks 2022 Mid-Year Review

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Global Risks 2022 Mid-Year Review

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Tani Fukui David Heslam Douglas Renwick David Richter
JUL 19, 2022

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Although much progress has been made in recovering from the worst of the COVID-19 pandemic, the path has not been smooth and is under threat from inflation and economic downturn. Our expectation is for the global economy to continue to grow for the rest of 2022, with countries facing likely recession in 2023. We also expect inflation to moderate in the second half of the year. However, there are plenty of uncertainties, and we highlight the key risks for major economies below.

Risk #1: Recession in 2022

The risk: Recession comes before year-end 2022, much sooner than we expect.

The risk of a 2022 recession has already risen in the months since the start of the Russia-Ukraine war. In the U.S., a further acceleration of a recession timeline could come about from at least four different sources. One is the aggressive Fed Funds hiking path communicated by the Fed. Although this sharply tighter path may be necessary, given the current inflation levels, the Fed could easily overshoot the amount of tightening needed, given that inflation tends to respond with a lag to monetary policy. A second concern is that consumers continue to panic.