Global Economic Outlook: China Casts a Shadow in the East…and West

The Northern Trust Economics team shares its outlook for major markets in the months ahead.

The post-pandemic economic environment has left most observers humbled. Whether it was the speed of rebound in the reopening phase, the surge in inflation that followed or the economic resiliency of the West in the face of tighter policy, the past couple of years have continually confounded forecasters. That said, a slowdown is upon us. Activity in China and Europe has weakened notably in recent months, and there are signs that the U.S. economy is poised for a deceleration.

The softer outlook is bringing the rate hiking cycle close to an end for Western countries, but the peak is still not entirely clear. Inflation is falling, but not quickly enough to allow a pivot. The recent rise in oil prices and still-tight labor markets may slow the speed of disinflation. American and European central banks will err on the side of keeping policy tighter for longer, while the People’s Bank of China (PBoC) battles to prevent persistent deflation.

Striking a balance between price and economic stability is what the policymakers strive for, but that will be hard to achieve without a compromise on one or the other.

This month’s edition of the global outlook offers a deep dive into the Chinese economy.