Article

Macro Challenges Are Converging

We know that a recession is looming, but it remains unclear how broad and how deep it will be.

著者：Austin Kimson

First published on 8月 03, 2022
min read


The steep deterioration in economic outlook measures has been unusually rapid and exceptionally deep across three major economic regions. In the US, one major survey of consumer expectations has fallen to levels not seen since 1980. Chinese consumer confidence has dropped off a cliff, most likely because of lockdowns but exacerbated by a badly shaken property sector. And expectations in the heart of the eurozone, as measured by a key German business survey, have plummeted to levels not seen since the global financial crisis (see Figure 1). Figure 1 Three major economic regions have experienced a rapid and deep deterioration in their economic outlook measures Among the many factors contributing to the steep drop in the macroeconomic outlook is the large boom-to-bust trajectory of global credit as lending increased by 14 percentage points (relative to world output) between the fourth quarter of 2019 and the first quarter of 2021, when it peaked at 119% of gross world product. Global lending has since fallen by 5 percentage points in just three quarters (based on data available through the end of 2021). Yet the Federal Reserve has only recently started to tighten monetary policy, and the European Central Bank raised rates in July for the first time in 11 years (from negative 0.5% to 0%). By comparison, the same measure of liquidity drifted down only 4 percentage points following the global financial crisis, over a period three times as long and with expansive interventions from the Fed and ECB that were considered unprecedented at the time (see Figure 2). Figure 2 The large boom-to-bust trajectory of global credit has contributed to the steep drop in macroeconomic outlook The most acute stresses vary across each of these three major economic regions. In the US, where inflation is the predominant economic challenge, a rapid rise in home mortgage lending rates has pushed inflation-adjusted new mortgage costs to levels surpassing their 2006 peaks. In China, issues in the property sector have led to mortgage boycotts and new programs to bail out the industry—all while recent lockdowns have produced the country’s second quarterly GDP contraction in modern economic history. And in Western Europe, energy prices and rationing loom over the region’s industrial base and broader economy, pushing the eurozone’s producer price index up 42% since January 2021. Notably, key benchmark natural gas prices rose dramatically well before the outbreak of war in Ukraine, which suggests that the energy supply challenges predate geopolitics and may not fully resolve even in the aftermath of the war. While each region is grappling with its own challenges, these issues appear to be converging in the near term across the second half of 2022 and into 2023, presenting the possibility of another globally synchronized downturn just two years after the last one. The critical question for businesses has now shifted away from asking if there will be a recession in the near term to asking how broad and how deep the recession will be. The direction of major central banks and their ability to use financial system inflation to soften downturns may be an important determinant of depth. The rapid liquidity support that central banks provided in 2008–2009 and again in the early months of the pandemic was critical to setting a floor under the crises and bolstering recovery efforts. But inflation was not a complicating factor at the onset of either of those crises. It is today. So, the real question facing the global economy is: Will this time be different?

The steep deterioration in economic outlook measures has been unusually rapid and exceptionally deep across three major economic regions. In the US, one major survey of consumer expectations has fallen to levels not seen since 1980. Chinese consumer confidence has dropped off a cliff, most likely because of lockdowns but exacerbated by a badly shaken property sector. And expectations in the heart of the eurozone, as measured by a key German business survey, have plummeted to levels not seen since the global financial crisis (see Figure 1).

Three major economic regions have experienced a rapid and deep deterioration in their economic outlook measures

Among the many factors contributing to the steep drop in the macroeconomic outlook is the large boom-to-bust trajectory of global credit as lending increased by 14 percentage points (relative to world output) between the fourth quarter of 2019 and the first quarter of 2021, when it peaked at 119% of gross world product. Global lending has since fallen by 5 percentage points in just three quarters (based on data available through the end of 2021). Yet the Federal Reserve has only recently started to tighten monetary policy, and the European Central Bank raised rates in July for the first time in 11 years (from negative 0.5% to 0%). By comparison, the same measure of liquidity drifted down only 4 percentage points following the global financial crisis, over a period three times as long and with expansive interventions from the Fed and ECB that were considered unprecedented at the time (see Figure 2).

The large boom-to-bust trajectory of global credit has contributed to the steep drop in macroeconomic outlook

The most acute stresses vary across each of these three major economic regions. In the US, where inflation is the predominant economic challenge, a rapid rise in home mortgage lending rates has pushed inflation-adjusted new mortgage costs to levels surpassing their 2006 peaks. In China, issues in the property sector have led to mortgage boycotts and new programs to bail out the industry—all while recent lockdowns have produced the country’s second quarterly GDP contraction in modern economic history. And in Western Europe, energy prices and rationing loom over the region’s industrial base and broader economy, pushing the eurozone’s producer price index up 42% since January 2021. Notably, key benchmark natural gas prices rose dramatically well before the outbreak of war in Ukraine, which suggests that the energy supply challenges predate geopolitics and may not fully resolve even in the aftermath of the war.

While each region is grappling with its own challenges, these issues appear to be converging in the near term across the second half of 2022 and into 2023, presenting the possibility of another globally synchronized downturn just two years after the last one. The critical question for businesses has now shifted away from asking if there will be a recession in the near term to asking how broad and how deep the recession will be. The direction of major central banks and their ability to use financial system inflation to soften downturns may be an important determinant of depth. The rapid liquidity support that central banks provided in 2008–2009 and again in the early months of the pandemic was critical to setting a floor under the crises and bolstering recovery efforts. But inflation was not a complicating factor at the onset of either of those crises. It is today. So, the real question facing the global economy is: Will this time be different?