World Economic Situation and Prospects 2022

The disruption of the global supply chain caused by China's strict COVID-19 measures and Russia's invasion of Ukraine slowed manufacturing growth from the Far East to Europe. The increased risk of a US economic recession poses a new threat to the global economy.

Due to high eurozone prices, demand for manufactured goods fell at the fastest rate since May 2020, when the coronavirus pandemic began to take its toll globally. The Purchasing Managers' Index (PMI) of financial data analysis and research firm S&P Global fell from 54.6 to 52, its lowest level in nearly two years. The survey predicted that the decline would be more moderate, at 53.9. However, the index is approaching the 50-point threshold that separates growth from contraction.

Global Economic Prospects Report

The World Bank has released its Global Economic Prospects Report for June 2022. According to the report, after more than two years of the epidemic, Russia's attack on Ukraine will hasten the global economic slowdown.

The report cited several downside risks to the economic outlook, including rising geopolitical tensions, stagflation headwinds, financial instability, continued supply shortages, and worsening food insecurity, emphasizing the importance of a strong policy response. According to the report, the war in Ukraine increased commodity prices, supply cuts, food insecurity, poverty, and inflation, resulting in tighter financial conditions, financial fragility, and policy uncertainty.

Stagflation Risk

According to the report, the global economy will grow by 2.9 percent in 2022 and by 3 percent in 2023 and 2024. The World Bank predicted that the global economy would grow by 4.1 percent in 2022 and 3.2 percent in 2023 in its January 2022 report.

According to the report, developed economies' growth expectations for this year have been reduced from 3.8 percent to 2.6 percent, their growth forecast for the following year has been reduced from 2.3 percent to 2.2 percent, and their growth forecast for 2024 has been reduced to 2.2 percent. It was reported that the value was 1.9.

According to the report, the growth forecast for emerging and developing economies for this year has been reduced from 4.6 percent to 3.4 percent, and the forecast for 2023 has been reduced from 4.4 percent to 4.2 percent. These countries' growth forecast for 2024 was calculated to be 4.4 percent. The report noted an increased risk of stagflation, which could be harmful to both middle-income and low-income economies.

UK Recession Probability

The British economy unexpectedly contracted in April. Companies are complaining about rising production costs, fueling fears that the economy will enter a slump.

The Purchasing Managers' Index (PMI) in the UK also signaled that the economy started to stumble in this period when high inflation negatively affected new orders and companies' concerns about a recession increased. Another Reuters poll puts the likelihood of the UK entering a recession in the next 12 months at 35%.

The 2022 Growth Forecast for the US Economy

The report reduced the US economy's growth forecast for 2022 from 3.7 percent to 2.5 percent. In the report, the Eurozone economy's growth forecast for this year was reduced from 4.2 percent to 2.5 percent, and the forecast for 2023 was reduced from 2.1 percent to 1.9 percent. In 2024, the Eurozone is expected to grow by 1.9 percent.

The Global Macroeconomic Outlook

According to Fitch Ratings, an international credit rating agency, the global macroeconomic outlook has deteriorated significantly since the beginning of 2022. According to the statement, inflation, interest rate hikes, and stagflation all harmed the sector's outlook.

The worsening macroeconomic outlook prompted a review of nearly 300 sector and asset performance outlooks, with tightening financial conditions, weakening growth, the Russia-Ukraine war, and ongoing supply chain disruptions affecting multiple sectors.

According to the statement, downward revisions to GDP growth are the main theme driving most of the downward changes in sector outlooks in a period of fragility caused by higher-than-expected inflation and faster monetary tightening.

The Growth Expectations of German Industrialists

The German Industry Federation (BDI) lowered its 2022 growth forecast for the German economy to 1.5 percent from 3.5 percent, which was announced prior to the start of the Russia-Ukraine war.

In the BDI report, BDI President Siegfried Russwurm stated that the Russian invasion of Ukraine, as well as the effects of the COVID-19 pandemic, are causing problems for the industry. According to Russwurm, the gas cut will have a significant negative impact on the manufacturing industry and will inevitably push the economy into recession.

The Fed's Aggressive Rate Hike

The US Federal Reserve (Fed) raised the policy rate by 75 basis points, to a range of 1.50–1.75 percent.

The Fed's decision to raise interest rates by 75 basis points after inflation data reached a 41-year high was the fastest rate hike since 1994. The Fed raised its 2018 inflation forecast from 4.3 percent to 5.2 percent. The US economy's growth forecast for this year has been reduced from 2.8 percent to 1.7 percent.

In a statement issued following the meeting, Fed Chairman Jerome Powell stated that the bank may raise interest rates by 50 or 75 basis points in July in response to high inflation, while also stating that the 75 basis point increase in interest rates was unusually large and that he did not expect such movements to be widespread. Following Powell's remarks, in which he stated that reducing inflation is their priority and that they are acting quickly to do so, the stock markets began to rise as uncertainty about the future decreased.

The Import of Russian Oil

The establishment of a mechanism to set a price cap on Russian oil is expected to limit Russian oil imports and prevent Russia from selling at a higher price. And this measure is expected to reduce inflation caused by rising energy prices as a result of Russia's invasion of Ukraine. While Italy and the United States are pushing for this measure, some European countries are concerned that it will lead to new crises within the European Union.