Gloomy developments since early 2022 continue to set the global economy on a course of slower growth and higher inflation during the third quarter (“Q3”) of  2022. Global real GDP growth is forecast to decline to 3.0% in 2022 and 2.9% in 2023, after the strong recovery of 6.2% recorded in 2021. Downside risks have increased, with uncertainties coming from various sources, including the ongoing war in Ukraine, geopolitical tension between China, Taiwan and the US, skyrocketing inflation, a sharp tightening of global financial conditions, and China’s economic slowdown. After a rally in July, both shares and bonds turned lower and registered negative returns for Q3. The Federal Reserve (FED), European Central Bank (ECB) and Bank of England (BOE) all raised interest rates in the quarter and reaffirmed their commitment to fighting inflation and would not be cutting any interest rates. Emerging markets underperformed their developed counterparts while commodities generally declined.

The US economy faced a significant slowdown in Q3 2022, as consumer and business confidence weakened further amid fading pent-up demand, multi-decade high inflation and tightening financial conditions.  US equities fell in Q3, as the communication services sector, including both telecoms and media stocks along with real estate, were among the weakest sectors over the quarter. On the other hand, the consumer discretionary and energy sectors proved the most resilient. In August’s Jackson Hole summit of central bankers, the Fed reaffirmed its commitment to fighting inflation, excluding the possibility of interest rate cuts. This sent stocks lower in the second half of the quarter. The Fed raised the federal funds rate by 75 bps to 3.25% in September; the third consecutive 75bps increase.

Eurozone economies continue to be hit hard by the impact of the war in Ukraine, given their high exposure through energy imports. Growing uncertainty over energy supply, particularly for the coming winter, coupled with weakening global and regional demand, are dragging down the Eurozone’s growth outlook. Energy costs continued to be the largest contributor to inflation. GDP figures showed the eurozone economy grew by 0.7% quarter-on-quarter in Q2. However, forward-looking indicators signalled a weakening economy. The ECB raised interest rates by 75 bps in September, following a rise of 50 bps in July.