Global Economy: Stagflation worries are growing
Global Fixed Income team’s view as of 6/15/22.
U.S. Economy Slows Sharply
Several headwinds, including roaring inflation, rising interest rates, slowing corporate profits and supply chain constraints, continue to cloud the U.S. economic outlook. Additionally, the first quarter’s economic contraction combined with early-1980s-style inflation have ignited concerns about recession and stagflation. However, we remain optimistic that consumer demand will help support a modest rebound in growth. For the year overall, we expect the economy to grow at a much slower pace than in 2021.
Growth Is at Greater Risk in Europe
The eurozone economy barely expanded in early 2022, and the growth outlook remains weak as the war in Ukraine rages. Amid soaring energy prices, record-high inflation and muted economic growth, stagflation risks are rising. Similarly, growth is likely to weaken in the U.K., which is contending with surging energy costs and persistently high inflation.
COVID-19 Policies Are Stifling China’s Economy
China’s growth rate continued to slow amid the country’s zero-COVID policy, which led to lockdowns in key cities and a contraction in manufacturing. Policy stimulus, including more front-loaded special bond issuance, tax cuts, loan/interest payment deferrals and policy rate cuts, could support a subpar bounce back. In general, this scenario should support commodity exporters over commodity importing nations.