Credit Suisse issues dire global economic outlook: 'Worst is yet to come'

Published Thu, Sep 29 202210:37 AM EDT

Aggressive inflation fighting efforts are slowing global growth, and the picture is unlikely to get better anytime soon, according to Credit Suisse. In a note titled "The worst is yet to come," the firm's economists said they expect central banks to continue raising interest rates to cool inflation. That in turn will bring GDP gains to a near-standstill at least until some signs emerge that prices are falling. "Higher rates combine with ongoing shocks to lead us to cut GDP forecasts," Credit Suisse said. "The euro area and UK are in recession, China is in a growth recession, and the US is flirting with recession." The forecast calls for global GDP gains of just 2.6% in 2022 and 1.6% in 2023. In the U.S., growth will be "close to zero" this year and then just 0.8% in 2023. The low growth will mean that the environment for stocks and other risky assets "is deteriorating." One slight positive in the report is that the firm does not forecast an outright recession for the U.S. despite weak GDP numbers that included consecutive quarters of negative growth to start the year. However, the firm noted that risks to that forecast are rising as inflation pressures persist. Jobless claims data released Thursday showed the Fed's efforts to cool off the U.S. labor market appear to be having little effect, with layoffs instead hitting five-month lows. At the same time, a separate report showed inflation ran at a faster pace than previously thought in the second quarter. "Crucially, the rising share of price categories above central bank inflation target levels shows inflation is broadening out from a limited group of supply shock related drivers to more general inflation," Credit Suisse said. "This broadening requires tighter policy and weaker economies because it increasingly reflects tight labor markets." The firm added that it doesn't expect central banks to back down from the inflation fight even while growth slows considerably. In the case of the Fed, Credit Suisse expects the U.S. central bank to keep raising until its benchmark funds rate hits a range of 4.5%-4.75% from its current 3%-3.25%. That forecast is in line with projections the Fed released last week.

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