Macroscope | Recession fears are growing, but the global growth outlook isn’t all bad

Pessimism over GDP growth has not given way to hysteria yet, with PMI surveys showing that business activity remains healthy

As long as policymakers don’t go overboard with tightening, conditions suggest a soft landing is likely

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Residents walk through a reopened shopping mall in Beijing on May 29, as restrictions imposed following a Covid-19 outbreak in late April are gradually lifted. Photo: AP

Published: 1:30pm, 13 Jun 2022

Storm clouds have been gathering for quite a while, headwinds continue to build and global economic confidence is being badly buffeted. The hangover effects from the Covid-19 pandemic and the fallout from the war in Ukraine have taken their toll on global recovery prospects, and it’s no wonder fears about an imminent recession are rising.

It’s early days, but there are signs of light at the end of the tunnel. Global manufacturing surveys are still operating in positive territory and, despite growing pessimism for a major stock market meltdown, investor sentiment seems to be holding at reasonably firm levels.

There may be greater risks in some regions, but there’s a reasonable chance we’ll be spared a worldwide recession. Global policy settings remain extremely loose and policymakers are unlikely to risk a deeper downturn for the sake of an overzealous squeeze on inflation. Steady nerves will be needed in the second half of 2022, but the world should be on a surer footing by 2023.

Right now though, the pandemic and the Ukraine conflict are both taking a heavy toll on expectations. The Organisation for Economic Co-operation and Development has taken a much dimmer view of global GDP growth prospects in its June Economic Outlook, downgrading its 2022 forecast to 3 per cent, from 4.5 per cent in December.

Mathias Cormann, secretary general of the Organisation for Economic Co-operation and Development, attends the OECD Economic Outlook at the grouping’s headquarters in Paris on June 8. Photo: AFP

The sharp revision reflects rising geopolitical tensions, the oil price shock, the inflationary overhang due to pandemic-related supply chain disruptions, and the expected tightening in global monetary conditions. Some critics might argue that the growth downgrades could go further.

However, recent global manufacturing survey numbers suggest the outlook is not quite as grim as the pessimists believe. The latest purchasing managers index (PMI) for global manufacturing from S&P Global and JP Morgan seems to have steadied at 52.4 for May, down from the post-pandemic peak of 56 in May last year, but still holding reasonably well above the critical 50 boom-or-bust line.

.css-1m2rp1p{color:#34b8b5;}Macroscope | Recession fears are growing, but the global growth outlook isn’t all bad

Macroscope | Recession fears are growing, but the global growth outlook isn’t all bad