The economic slowdown is intensifying
• The major economies are slowing rapidly
• Real wages are squeezed by higher inflation
• US recession risk is now above 50%
• The Fed will likely be less hawkish in H2
• Housing markets are turning down hard (Focus p2)
Overview
Western economies are cooling rapidly under the onslaught of falling real wages and tough central banks. Lower stock prices and increasing talk of recession are further hurting sentiment. The US could still avoid a recession – the famous soft landing – but the chance is receding with the persistence of inflation and large rate hikes. We now think a US recession is more likely than not, and probably starting this year, while Europe, Japan and the UK will almost certainly suffer a recession as they are hit harder by higher energy costs.
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