Global economy on brink of recession as inflation soars, central banks tighten

The global outlook was mixed last week, with some positive signs, such as wage growth and digital transformation, but also some negative signs, such as the economic slowdown and persistent inflation. Geopolitical tensions also remained high. It remains to be seen how these trends will develop in the coming weeks and months.

Key global trends last week, September 25-30, 2023:

Economic slowdown: The global economic outlook darkened, with economists warning of a potential recession in the near future. This was due to a number of factors, including the ongoing war in Ukraine, high inflation, and rising interest rates.

The war in Ukraine has disrupted global supply chains and caused energy prices to soar.
High inflation is reducing consumer spending and business investment.
Rising interest rates are making it more expensive to borrow money, which is slowing economic growth.

Persistent inflation: Inflation remained elevated in many countries, with no signs of abating. This was putting a strain on household budgets and businesses, and was making it difficult for central banks to manage.

The main drivers of inflation were energy prices, food prices, and supply chain disruptions.
Central banks are raising interest rates in an attempt to bring inflation under control, but this could slow economic growth.

Wage growth: Wage growth picked up in some countries, as employers competed for workers in a tight labour market. However, wages were still rising more slowly than inflation in most countries, meaning that real wages were falling.

This was creating a cost-of-living crisis for many people, who were struggling to make ends meet.
Governments are facing pressure to increase social benefits and provide relief to low-income households.

Digital transformation: The digital transformation of the global economy continued, with businesses investing in new technologies and ways of working. This was creating new opportunities for growth and innovation, but it was also raising concerns about job displacement and inequality.

The pandemic had accelerated the adoption of digital technologies, and this trend was expected to continue.
However, there were concerns that some workers would be left behind by the digital transformation, and that inequality would widen.

Geopolitical tensions: Geopolitical tensions remained high, with the war in Ukraine continuing and tensions rising between the United States and China. This was adding to uncertainty and instability in the global economy.

The war in Ukraine had a significant impact on global energy prices and supply chains.
Tensions between the United States and China were raising the risk of a trade war, which could further damage the global economy.

Specific developments last week:

The Federal Reserve held interest rates steady, but signalled that it is prepared to raise rates more aggressively in the coming months. This was in response to high inflation and the risk of a recession.
The Bank of England took a break from raising interest rates, but warned that inflation could remain high for longer than expected. This was due to the ongoing war in Ukraine and supply chain disruptions.
The Japanese yen rose in anticipation of a shift in monetary policy by the Bank of Japan. The Bank of Japan has been reluctant to raise interest rates, but pressure is mounting for it to do so.
China's strength in electric vehicles led to potential EU retaliation. The EU is concerned that China is using subsidies to give its electric vehicle industry an unfair advantage.
China's economy and inflation rebounded modestly, but headwinds remain. The Chinese economy is still facing a number of challenges, including the ongoing war in Ukraine and a property market slowdown.
The US headline inflation rebounded, but underlying inflation declined. This suggested that the peak in inflation may be near.