Global economic forces
Tailwinds
- Reduced pressure on real incomes and on aggressive interest rate increases from slowing inflation
- Solid job gains supported by improved labor supply and spending shift to labor-intensive services
- Reasonably supportive corporate and household finances
- Supportive infrastructure and other investment from government spending packages
- Increasingly aggressive fiscal and monetary stimulus in China
Headwinds
- Rising interest rates from global central-bank credit tightening
- Credit quality and financing tested by tightening liquidity conditions
- Supply shortages from the weather and geopolitics limit commodity-price declines
- Global disinflation pressures rise with a strengthening U.S. dollar
- China’s recovery slowed by COVID-19 lockdowns, slumping real estate, weakening global activity
- Fiscal “drag” from diminished budget deficits
- The housing slowdown’s varied effect on economic activity
Source: Wells Fargo Investment Institute, as of September 30, 2022. Subject to change.
Key Takeaways
- Gathering headwinds will likely expose the U.S. economy to higher recession risk beginning late 2022 and through the first half of 2023. Fallout from high inflation on interest rates and real incomes is our main outlook threat.
- The most visible risk in our outlook is excessive tightening of credit conditions, leaving leveraged sectors of the global economy exposed to an abrupt pullback.