We are witnessing significant divergences in the economic outlook (we have revised down the EU and Chinese economic outlooks vs. the more resilient US economy) and in market performances.
- Inflation expectations – short-term peak vs. long-term rise: While short-term inflation may start to decelerate, the long-term view is increasingly showing that sticky inflation (e.g., shelter inflation) remains high (harder to reverse) in light of geopolitical risks and the supply chain stress amid Shanghai’s lockdown.
- Recession risks: The US economy remains solid while the Eurozone is the most exposed to stagflationary risk. We will most likely see at least a short-lived recession in H2, triggered by Germany and Italy, while France and Spain might show some resilience. In China we see the official target of 5.5% growth for 2022 as being difficult to reach.
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