High inflation and the Ukraine crisis have dented the outlook for real economic growth. With pay growth not keeping up with inflation, real pay growth has been hit. Recession risks have risen, though recession isn’t in the central case.
The fiscal outlook is set to be a bit more supportive than just a couple of months ago as governments provide cost-of-living support. Monetary policy, however, is set to tighten much more than seemed likely just a few months ago: Policymakers themselves have become more hawkish, unemployment continues to fall, pay growth is strong in some economies, inflation keeps surprising on the upside and inflation expectations have risen. Consumer price inflation is expected to fall later this year, but to higher levels than previously anticipated.
The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.