Published on Monday, July 11, 2022
The aggressive monetary tightening, together with the likely fading of current supply shocks, will possibly manage to reduce inflation in the medium term, avoiding more negative macroeconomic scenarios. However, it will lead to a slowdown in demand and episodes of recession in the US and Eurozone.
- Key points:
- In a context of relatively strong demand, the insufficient supply reaction has led to bottlenecks, which have been compounded by disruptions caused by the war in Ukraine, particularly in commodities markets.
- The era of zero or negative interest rates is behind us. The coming months will see an aggressive tightening of monetary conditions, particularly in the United States and the Eurozone.
- On the one hand, the reaction of central banks, together with the likely fading of current supply shocks, will possibly manage to control inflation in the medium term, avoiding more negative macroeconomic scenarios.
- That said, monetary tightening will lead to a slowdown in demand in general and in the labor, financial, real estate, etc. markets in particular, which will add to the direct negative effects of inflation on agents' purchasing power.
- A recession in the United States, where monetary tightening will be particularly significant given that demand pressures are more relevant there, is very likely in 2023. The Eurozone is also likely to face a scenario of lower activity in the coming quarters.
Documents to download
Enestor_DosSantos_Enfriamiento_global_ElPais_WB.pdf Spanish July 11, 2022
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