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Economists and policy makers generally recognize that growth will be weaker than was anticipated at the end of last year. Price pressures are going to be stronger and last longer than previously projected. The supply shock has been exacerbated by Russia’s invasion of Ukraine and the social restrictions in China stemming from Covid.
With the major central bank meeting past, the highlight in the week ahead will be the flash PMI readings. The risks are on the downside. And if those risks do not materialize, many will assume they will later. At the same time, major and many emerging market central banks feel compelled to continue the tightening cycles. The Swiss National Bank and the Bank of Japan are notable exceptions. So is the People’s Bank of China, which is more likely to ease policy than tighten.
While a recession has been a risk scenario, we worry that the odds are increasing, and it could…