This research was published on September 12, 2022

About two and a half years into the COVID recovery, the world economy is facing the prospects of a new downturn. On the surface, the global economy is buffeted by common headwinds, chief among them inflation, which has been turbocharged by the war’s impact on global energy prices, reducing real incomes while pushing up interest rates. Even so, the challenges faced in the three main economic regions–the U.S., Europe, and Asia–are very different, not least because the aforementioned headwinds are not nearly as global as they seem.

To appreciate divergent risks and their likely timing we should remind ourselves of the cyclical drivers and structural context of each region. Compared to the U.S., the Eurozone is hit by more acute economic headwinds in the near term, but there could be a reversal of fortunes in 2023 as U.S. challenges are likely to prove more persistent. Meanwhile, the largest Asian economies–Japan and China–are in the most favorable position near term as recession risks look comparatively low. However, over the longer term, both new and old structural challenges in Asia are likely to make growth riskier than in the West.