Big Picture: A (mild) recession in western economies seems unavoidable
Key takeaways
- The war in Ukraine is contributing to the biggest commodity price shock in decades, adding to already significant inflation pressures and need for vigilant central bank tightening.
- Yet near-term economic growth will continue to be supported by pent-up demand, savings, and the re-opening of economies, benefiting especially service sector activity.
- However, substantial monetary policy tightening will increasingly weigh on economic growth, prompting a mild recession in the US around Q2 23, spilling over to other western economies and EMs later next year.
- Recovery in the Chinese economy in 23 will mitigate some of the setback, but still we expect unemployment to rise in the US and later in other western economies.
- The risk is skewed toward an earlier recession given the scale of financial tightening and erosion of purchasing power from high inflation.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
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