Quarterly Outlook Q2 2022 – Q1 2023: U.S. Soft Landing

Genevieve Signoret

(Hay una versión en español de este artículo aquí.)

We have built two forecast scenarios for the global economy and markets in the next four quarters. What follows is the executive summary. For the full forecast report in PDF, click here or visit our Research page. 

Executive Summary

Under central-scenario assumptions, we forecast for the eight quarters starting in Quarter 2 (Q2) 2022 a soft landing in the United States, brief and shallow recessions in 2023 in Mexico and the euro area, slowing inflation everywhere, and gradual and volatile resumption sometime this quarter of a U.S. bull market.

This scenario, to which we assign a 55% subjective probability and call U.S. Soft Landing, assumes that Western allies fail to agree to an embargo on Russian oil during the forecast period. Also, that macro data revealing a weakening U.S. economy convince Fed officials to tone down their hawkish talk and end their tightening cycle already this year.

U.S. Soft Landing assumes further that, although European Central Bank (ECB) officials tighten later and more slowly than the Fed, they still go too far, taking the euro area into a mild and short recession in 2023. And that Banxico officials, who, we believe, have already overdone tightening. This further suppresses demand in coming quarters and thus pushes Mexico, too, into a next-year recession.

In our downside risk scenario, U.S. Recession, an agreement among Western allies to embargo Russian oil keeps oil prices high. The Fed fails to relax its policy stance, thus pushing U.S. recession and a secular bear market. The recessions suffered by the euro area and Mexico, moreover, turn out deeper and longer than in our more benign scenario.

We visualize no upside risk scenario.

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