S&P named two main risks for the global economy

Standard & Poor's analysts named two main risks for the global economy. Firstly, it is inflationary pressure, which requires stronger steps from central banks in monetary policy, and secondly, it is the protracted conflict between Russia and Ukraine, which exacerbates the ongoing energy crisis and increases risk aversion.

The agency's specialists have developed a scenario for a decline in the global economy based on a set of negative forecasts presented for the main sectors of the economy in the period 2022-2025. This is a scenario that has «about one chance in 3» to be implemented, and in which Europe will suffer the most.

In 2023, growth in the eurozone will be 90 basis points weaker than in the baseline scenario, and a protracted recession may occur in Germany, characterized by a decline in growth of 1.2% in 2023 and 90 basis points in 2024. In this case, inflation in Germany will be 1-2% higher than in the baseline in 2023 and will gradually decrease, remaining above the target level until 2025.

In the US, according to the S&P scenario, inflation will remain elevated even longer, which will prompt the Fed to continue a sharp rate hike. With a gradual increase in the rate, the macroeconomic picture in the United States will also change. According to the baseline scenario, a shallow recession is expected in the US, and in the worst-case scenario, it will deepen and last longer, as a result of which the US GDP in 2023 will be below the baseline forecast of a 0.1% contraction.

In the Asia-Pacific region, the unfavorable scenario will have a moderate impact on growth, and it will be especially modest in the large economies of the region, driven by domestic demand: China, India and Indonesia. However, those countries where exports play an important role (South Korea, Taiwan) may suffer more due to a combination of slowing external demand and weakening confidence.