Rapid policy tightening fuels businesses’ recession fears: Oxford Economics

BUSINESSES are increasingly concerned about the impact of rapid central bank policy tightening on global growth, with tighter policy already affecting inflation expectations among businesses.

Specifically, 1 in 4 respondents in the Oxford Economics’ July Global Risk Survey cited rapid policy tightening as the top near-term global economic risk.

Of the 164 businesses surveyed, more than three-quarters of businesses reported becoming more negative about global growth prospects over the next month.

Half (52 per cent) reported becoming “slightly more” negative while a quarter (26 per cent) reported that they have become “significantly more” negative.

Meanwhile, near-term expectations for world GDP have weakened with the mean expectation for 2022 standing at 2.1 per cent, down from 2.4 per cent in June and 1.5 percentage points lower than the level anticipated prior to the Russia-Ukraine conflict.

Business expectations for 2023 have also edged lower, with the mean expectation for growth coming in at 2.2 per cent, down from 2.4 per cent in March’s survey.

On the inflation front, the perceived chance of very high world inflation has halved. On average, businesses see an 11 per cent chance of world inflation exceeding 6 per cent this year, half the figure reported in April.

For 2023, the mean expectation for world inflation has fallen back and businesses on average anticipate inflation of 4.3 per cent, 0.3 percentage point lower than what was expected 3 months ago.

Over the medium term, the mean expectation for world inflation has risen only marginally; the mean expectation stands at 3.2 per cent, only 0.2 percentage point higher than in the July 2021 survey.

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That being said, businesses see material upside risks, with a 1-in-5 chance of inflation remaining above 4 per cent over the medium term.

Separately, concerns about climate change have increased. More businesses are now citing climate change as the top global economic risk over the medium term, while a small but increasing number of respondents now also view climate change as a key global economic risk in the near term.

In terms of medium-term downside risks, these were largely in line with the previous quarter. About two-thirds cited geopolitical concerns such as the Russia-Nato conflict as a significant risk, while the second-highest risk cited was climate change.