Recent conversations about the global economy and markets have been defined by a set of recurring questions. While there are many moving parts that are difficult to capture in a single clear picture, it is worth attempting to bring some of the biggest issues into better focus.
The first question is straightforward: Is a recession looming? With authoritative growth forecasts like those from the International Monetary Fund having been revised significantly downward, and likely to be downgraded further, there is good reason to worry. But a global recession — defined as two consecutive quarters of negative gross domestic product growth — remains unlikely, though a major shock, such as a dramatic expansion of conflict or a sudden and significant disruption in a key market like energy, could change this outlook.
Some economies, however, certainly will contract. Russia’s GDP will surely shrink, even with higher oil and gas prices, as a result of severe and most likely prolonged Western sanctions. Europe, too, is likely to experience a recession, owing to high energy prices, heavy dependence on fossil-fuel imports and the (costly) imperative of rapidly weaning itself from Russian supplies. And many lower-income countries — for which soaring food and energy prices are compounding the effects of the pandemic — are facing harder times.