Winter Resilience

Positive economic developments, ranging from lower European gas prices to healing supply chains along with continued strength in labor markets, have pushed prospects of a recession down. And in regions where recession is still expected, it is likely to be short and shallow.

However, improved economic performance will also make underlying inflation more persistent. While lower commodity prices will help ease headline price increases, steady unemployment could lead to sticky core inflation. Central banks may be forced to become more restrictive for longer.

Monetary persistence by central banks could lead to instability in the financial markets. Enduring issues like U.S.-China tensions and the Ukraine war will also remain sources of uncertainty.

Here are our up-to-date perspectives on how major economies are poised to perform during the balance of this year.

United States

  • In the fourth quarter of 2022, U.S. gross domestic product (GDP) grew at an annualized rate of 2.9%. The economy grew 2.1% for the full year, representing a remarkable turnaround from a negative first half. However, coming quarters are likely to slow down as savings deplete and the labor market gives up some steam. Erratic inventories and trade dynamics will complicate the quarterly path of GDP.
  • The Federal Reserve continued its rate-hiking program, raising the Fed Funds rate by 25 basis points at the beginning of February to a range of 4.50-4.75%. The wording in the statement and messaging from the press conference suggest that the Fed is not done yet. We expect two more hikes of 25 basis points each at the FOMC’s March and May meetings, followed by a pause lasting into 2024.