Global | Growth is not dead; long live growth?

Summary

Following the outbreak of the war in Ukraine, over the past year, the perception that an economic recession was inevitable in the short term has built up. However, the signs of a recession are now few and far between.

Key points

• Key points:
• The colossal increase in the price of energy, mainly natural gas in Europe, would increase production costs and reduce household disposable income, which - most have argued - would lead to a technical recession at best.
• Moreover, the impact of war and sanctions would add to the effect of previous price pressures and aggressively rising interest rates on economic activity.
• However, despite the logic of the arguments, signs of a recession are scarce as of today. After strong growth in the first half of 2022, GDP decelerated, but remained positive.
• The surprising strength of economic activity is, in principle, good news, making a "soft landing" scenario for economic growth more likely.
• However, the resilience of economic activity increases the risk that central banks will be forced to tighten monetary conditions further or for longer, paving the way for a severe recession, a stagflation scenario or a financial crisis.

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