Updated Global Market Outlook: slower economic growth to collide with inflation spike


State Street Global Advisors has released its latest Global Market Outlook.

State Street Global Advisors has released its latest Global Market Outlook.

A challenging combination of elevated inflation and softening growth demands vigilance from investors. As central banks accelerate monetary policy normalisation, recession risks are rising, requiring a more cautious portfolio positioning.

“The Risk of a Policy Mistake”

  • Tightening could prove too much, too late
  • Global growth forecast cut by a full percentage point and skewed to downside
  • World trade to see further dramatic reversals of global supply chains
  • Increased probability of US recession versus soft landing
  • China growth target difficult to reach


We’re particularly focused on the risk that the reopening-fuelled boom will give way to a bust induced by aggressive tightening.

Macroeconomic outlook

The global economic environment has become considerably more precarious following Russia’s invasion of Ukraine. This powerful stagflationary shock worsens the monetary policy trade-off for nearly every central bank, with the prospect of slower growth colliding with sharply higher inflation.

We have trimmed global growth forecasts by a full percentage point to 3.6% and still see risks as skewed to the downside. Meanwhile, upwardly revised inflation forecasts will likely require further boosting.

We can’t help but feel some nervousness around what may turn out to be excessively aggressive market pricing for rate hikes. We are concerned about a boom-bust scenario brought about by tightening that could prove to be too much, too late.

Geopolitical outlook

The Russia-Ukraine War is the third shock to the global economic order in the past half-decade. Following the Trump trade wars and the COVID-19 pandemic, the war further undermines the existing model of global trade and capital integration.

The unfettered drive toward globalization came to a halt after 2008, but the rest of the 2020s will see more dramatic reversals away from a global supply chain optimized for efficiency. Instead, numerous sectors beyond technology (2018 trade wars) and healthcare (2020 pandemic) will now be emphasizing reliability.

Equities outlook

Elevated volatility in equity markets, influenced in particular by rising commodities prices, will likely remain. We continue to see pressure on European equities as the full impact of energy pricing and other inflationary forces flow through to earnings.

Fixed income market outlook

The US Federal Reserve is intent on squashing inflation, and market participants are ratcheting up rate-hike expectations accordingly.

Central banks around the world are set to drain money from the market at a rapid pace — at a time when growth is already slowing. It seems that the only way the Fed can engineer a soft landing at this point is if inflation eases in short order, allowing the Fed to ease off the break.

Our scenario analysis points to an increased probability of the recession scenario, relative to the soft landing scenario.

Commodities market outlook

Commodities are experiencing the strongest rally in more than 30 years, with broad-based gains seen across the energy, metals, and agriculture sectors. We anticipate that raw material prices will remain elevated throughout the year.

The Russia-Ukraine War has further highlighted Russia’s global energy influence and the reality that their exports of crude oil and natural gas cannot be easily replaced.

With prices across the commodities complex at elevated levels, concerns about a hawkish Fed and about demand destruction are causing investors to wonder if the rally can continue.


China’s “Zero-COVID” policy and lockdown strategy remain a risk to the country’s economic growth. China’s property sector also remains a risk and will continue to be a drag on economic growth in the near term, making the “about 5.5%” GDP growth target for 2022 difficult to reach.

Read the full outlook report.

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