Citing the economic effects of the war in Ukraine, TD Economics has downgraded its global growth forecast.
In a new report, the bank’s economists cut their 2022 forecast to 2.9% from 3.9% in March. They also trimmed the 2023 forecast to 2.7% from their previous 3.4% call.
“The downward revisions are mostly attributable to the ongoing supply shock from the war in Ukraine,” it said.
“The combined effects of supply chain pressures and high commodity prices are compressing margins and fuelling inflation,” the report said, adding that the geopolitical factors driving these strains are “unlikely to be resolved in the coming months.”
As inflation surges, consumer sentiment is deteriorating around the world, the report said.
“Rapidly tightening financial conditions are raising debt burdens and clouding prospects, especially for 2023,” it said.
For Canada, TD now sees annual growth of just 1.7% in 2023, down from 3.7% this year. In the U.S., growth is forecast to be even weaker — coming in at 2.2% this year and slipping to 1.4% next year.
“We are not forecasting a recession, but with growth close to stall speed, there is a very thin margin for error if another shock hits economies,” the report said.
Notwithstanding the economic gloom, TD noted some upside risks to the forecast.
“European nations have enacted fiscal measures to offset the cost-of-living crunch — thereby insulating real incomes. As monetary policy continues to tighten and demand for core goods eases, this could set in motion a ‘bull-whip’ effect whereby goods inflation eases substantially more than anticipated,” it said, adding that this could ease the pressure for more aggressive monetary tightening.
“As labour markets continue to be very tight, a scenario of slowing core inflation and insulated real incomes could set the stage for a rebound in consumer sentiment and a less severe slowdown in spending,” it said.