Global Risks 2023: Recession, Inflation, and Central Banks

Tani Fukui Shan Ahmed David Heslam Douglas Renwick David Richter Sue Aguilar
JAN 05, 2023

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Although we expect a global recession, risks remain.

  • The Fed may be unable to tame inflation: consumer balance sheets remain strong. On the flip side, the Fed’s data-dependence creates a risk of overtightening.
  • Treasury market illiquidity, combined with hidden, leverage-amplifying shocks, could result in a Fed intervention, which would conflict with its tighter monetary policy objectives 
  • The Russia-Ukraine conflict could further increase upward pressure on oil, natural gas, and food prices. Strong demand from China would especially strain Europe’s natural gas flows. 
  • More protracted COVID-19 outbreaks could delay China’s growth recovery, and political tension between the United States, Taiwan, and China could increase headline risk and cause economic disruptions.