What You Need to Know
The recovery continues, although September saw markets pull back from their August highs. We’ve revised our growth forecasts slightly lower, expecting the global economy to grow by 5.9% this year and 4.2% in 2022. Both forecasts remain well above the precrisis trend of 3.0%.
But the skew of risks around global growth has shifted markedly in recent months, from widespread optimism and upside risks to a more sober assessment of the outlook. China’s property market, the US debt ceiling and soaring energy prices in Europe all cloud the outlook. We’re also concerned that supply-side dislocations stemming from the coronavirus could be more pervasive and persistent than expected.
Of particular concern is the specter of a more challenging growth/inflation mix and a less certain outlook for monetary policy—one in which the only choices available to central banks are hard ones. The Fed is key. As we enter the fourth quarter, we share the view that inflation is likely to fall back next year. But upward pressure on prices has already been less transitory than expected, hinting at a more fundamental shift in inflation dynamics.