Skip to content

May 19, 2022

The Northern Trust Economics team shares its outlook for key markets in the month ahead.

In the two years following the discovery of COVID-19, the world has endured cycles of slowdowns and recovery that were often well-aligned. Fighting the virus was a global challenge, as were the complications endured in global supply chains. Headlines from any region might sound familiar to readers anywhere else.

Today, the growth of economies around the world is slowing, but in ways that are less coordinated and comparable. Not all nations have learned to live with the virus; spillover from the war in Ukraine is uneven; and inflation is more bearable for some economies than others. Most central banks are moving toward tightening, but at different speeds.

Slowing does not mean contracting. Moderations in growth do not necessarily lead to recession. We believe the world’s major economies can pull through today’s challenges, but downside risks are growing.

Here are perspectives on how major economies are poised to perform this year and next.

United States

  • The April reading of the consumer price index (CPI) was a slight improvement from March, and likely marks the start of a decline in inflation. However, the rate is still far too high, and the decline too slow. The Federal Reserve is acting decisively, raising the overnight Fed Funds rate by 50 basis points in May and starting to reduce its balance sheet in June. We expect two more hikes of the same size to follow, continuing in smaller increments into 2023, to a top level of 3.0%.
  • Despite inflation and rising interest rates, the U.S. economy is performing well. Domestic demand is resilient, and job creation continues, with April unemployment holding at 3.6%. As long as labor markets hold their stamina, the Fed will focus on fighting inflation, and the economy can keep growing. These favorable prospects are adding to the value of the dollar, which will also help curb domestic inflation.


  • Europe is faced with great uncertainty as a war unfolds to the east. While we do not expect the most extreme outcomes (such as an abrupt cutoff of Russian natural gas), the risks are palpable. The eurozone’s manufacturers are also contending with global supply complications stemming from China’s shutdowns.  Germany’s industrial production fell 5% from February to March, a more rapid contraction than anticipated. High energy prices will drive up near-term inflation and weigh on growth.
  • Though risks to the outlook are growing, the eurozone today features elevated inflation and strong employment. The bloc’s unemployment rate fell to a new low of 6.8% in March, while inflation reached a record high of 7.4% year over year. These circumstances call for a policy response, and the European Central Bank members are increasingly tilting in favor of raising rates sooner than later. We expect two hikes this year to bring the deposit rate to zero, ending eight years of negative rates, followed by a pause to assess ongoing conditions.

United Kingdom

  • Conditions on the ground in the U.K. are challenging, with the Harmonized Index of Consumer Prices exceeding 9% year over year in April. The higher cost of living weighed on first quarter gross domestic product (GDP) growth, which tapered to 3% on an annualized basis; growth in consumer spending decelerated to only 2.2%. Ongoing complications of Brexit will keep persistent upward pressure on inflation.
  • The Bank of England was the first major central bank to begin raising rates in this cycle, and it may be the first to stop. At its May meeting, the Monetary Policy Committee made its fourth hike to a rate of 1.0%, with guidance of more upward adjustments to come. However, the hike was accompanied by a slow growth forecast, raising the possibility of a brief technical recession. We foresee only one more rate increase this year, then holding flat as the economy finds its way to steadier growth and inflation.


  • The magnitude of inflation in Japan (1.2% year over year in March) looks minor relative to the rates seen in other advanced countries. However, the slow-growing economy will struggle to support a 2% inflation rate; incomes are unlikely to rise in tandem, squeezing households at a time when consumption will be important for recovery. In the first quarter, GDP contracted slightly, led by declines in government outlays, housing and personal consumption.
  • The Bank of Japan has maintained a steady outlook, recommitting to its yield curve control program despite volatility in fixed income markets. These circumstances have pushed the yen to a 20-year low. While this could be beneficial to Japan’s export sectors, production remains constrained by disrupted global supply chains. The currency’s fall does not pose a systemic risk, as the majority of Japanese debt is held domestically.


  • Contrary to the rest of the world, China’s leadership is persisting with widespread lockdowns to contain COVID-19, with damaging implications for its own economy and global supply chains. The nation’s 5.5% growth target falls further out of reach with each passing day. Past COVID outbreaks have shown that the virus ebbs and flows, giving confidence that the economy will reopen, but the specter of renewed lockdowns to come will hang over the outlook.
  • Even absent COVID-19, China faces a difficult year of overcoming supply chain complications and cooling its leveraged property sector. With such a need for support, the People’s Bank of China will remain accommodative and not follow the global trend of rate hikes.

Meet Our Team

Carl R. Tannenbaum

Carl R. Tannenbaum

Executive Vice President and Chief Economist
Ryan James Boyle

Ryan James Boyle

Senior Vice President, Senior Economist
Vaibhav Tandon

Vaibhav Tandon

Vice President, Economist

Discover More Insights

Explore our latest thought leadership on the global economy.
Develop context about the global events and economic themes that are shaping our world – and learn what they could mean for our future.
Gain quick insights by joining our chief economist for a 90-second video journey into today’s most impactful economic issues.
Review our forecasts for selected economic indicators and interest rates and explore how they could affect future U.S. economic conditions.
Explore the prospects and challenges ahead for the U.S., the U.K., the eurozone, China and Japan through analysis from our global economic research team.


Information is not intended to be and should not be construed as an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Under no circumstances should you rely upon this information as a substitute for obtaining specific legal or tax advice from your own professional legal or tax advisors. Information is subject to change based on market or other conditions and is not intended to influence your investment decisions.

© 2022 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the U.S. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. For legal and regulatory information about individual market offices, visit