- United States: Q3 GDP surprised to the upside, lifting 2022 average projections. However, our call for 2023-24 forecast has not changed significantly, with restrictive monetary policy dragging growth well below potential. We foresee increased recession risks in H2 2023, when we project the weakest growth trend, weakest composition of domestic demand, and heightened recession risks. While inflation seems to have peaked, stickiness in inflation may remain a key feature in the months to come, with core inflation declining slowly and remaining above target.
- Eurozone: GDP surprised to the upside in Q3, lifting carry-over growth for 2022. Nonetheless, we expect GDP to contract in Q4 2022-Q1 2023, followed by some weak recovery helped by receding inflation providing relief to the consumer (inflation will be the main recession driver). 2023 average dynamics will be weaker than previously expected, feeding into somewhat weaker 2023-24 projected growth. We upgraded our expectations for inflation at end-2022 / early-2023 due to firm momentum and broad-based inflationary pressures. Risks related to the energy component remain prominent for both the inflation and growth outlook.
- United Kingdom: we foresee a recession extending for a few quarters, driven by increased cost of living and tight financial conditions. We expect the economy to contract by -0.6% in 2023 and then recover, expanding by 1.1% in 2024. Risks are tilted to the downside, as our forecasts do not account for recent fiscal announcements. We expect inflation to remain elevated and in double-digit territory until Q1 2023 and peak in Q4 2022, while remaining above target for a considerable time.
- Japan: Q3 GDP growth came in weaker than expected, contracting by 0.3% QoQ seasonally adjusted. After border reopening, visitor arrivals doubled in October and recovered to 18.8% of the 2019 level. However, the reopening boost will not be sufficient to offset fully the external headwinds in 2023. Underlying inflation has risen, on closing output gap and elevated inflation expectation. We expect core inflation (ex fresh food and energy) to stay above 2.0% in Q4 2022 and Q1 2023, before it starts drifting down to below 1.0% in Q4 2023.

- Fed: the door is open to a reduction in the magnitude of rate hikes. The Fed will notably take into consideration: “the cumulative tightening of monetary policy” and “the lags with which monetary policy affects economic activity”. However, for the Fed it is still all about inflation. The Fed does not want the market to interpret the reduction in the size of rate hikes as a dovish pivot or as a sign of lack of commitment to fight inflation. The terminal rate and how long the Fed should keep interest rates in restrictive territory remain the big issues. We have a scenario of a 5.25% Fed Funds terminal rate.
- ECB: at its October meeting, the ECB raised its policy rates by 75bp with the deposit rate now at 1.5% and announced changes to the terms of the targeted long-term refinancing operations. By acknowledging the substantial progress made so far in policy normalisation, the ECB sent an important message through a more dovish tone, mainly on the back of deteriorating economic outlook. Consistently with the reading of the most recent minutes, we expect the ECB to slow the pace of rate hikes and our projection on the terminal deposit rate points to 2.50%.
- BoJ: markets are speculating on policy tightening from the BoJ on 28 April 2023, right after Governor Kuroda retires. We assign a 30% likelihood to such an event, holding the view that the BoJ already missed the boat of tightening. It has remained firmly dovish when inflation is rising and growth is ok, resisting all the pressure from peer tightening. We see no reason for it to change in early 2023, when the global economy should turn recessionary. Markets attach too much weight to a single event, and underestimate the prevailing dovishness across government agencies.
- BoE: at its latest meeting, the BoE joined other central banks in raising rates by 75bp. Despite the rate hike was larger than previous ones, the communication was dovish. On forward guidance, the BoE explicitly pushed back on market terminal rate expectations, previously above 5%, while the new set of macro projections is consistent with this message on forward guidance. At the same time, they made it clear that risks remain tilted to the upside. We expect a 50bp hike in December and rates to peak at 4.5%