Fragile global economy leaves little room for error
To say that 2022 hasn’t played out quite the way most have expected would be an understatement. Inflation above 40-year highs across much of the industrialized world, war in Europe and tensions in the South China Sea have only compounded the lingering effects of a global pandemic. As the world economy struggles to move beyond the impacts of COVID-19, we continue to face challenges not seen in generations. How policy-makers and businesses navigate these challenges, and their level of success, will determine if the global economy falls into recession.
Central bankers in Canada, the United States, the euro area and elsewhere are almost singularly focused on fighting inflation through a series of steady and significant interest rate increases. With headline inflation rates of nearly 10%, driven by supply shortages resulting from the war in Ukraine and ongoing COVID-19-related supply chain disruptions, most of the world’s major central banks have swiftly reversed course on the accommodative policy approach that saw them through the pandemic.
While prices for key commodities have fallen back, on concerns around global growth, they remain elevated and subject to heightened levels of volatility. We don’t expect much relief on food prices over the next year or so, given damage to agricultural lands and the displacement of labour in both Russia and Ukraine, to say nothing of flooding and drought conditions in other parts of the world. On oil, we expect West Texas Intermediate (WTI) crude to average $98/barrel this year, before settling back to $84/barrel in 2023. This, together with interest rate increases, the moderating impact of year-over-year price comparisons and weakening consumer demand should help dampen core prices next year.
Learn more here: https://www.edc.ca/en/weekly-commentary/fragile-global-economy.html