Vanguard’s economic and market outlook at midyear 2022

July 13, 2022

(Our midyear 2022 economic outlook pages reflect the house view of Vanguard’s global economics and markets teams as of July 7, 2022.)

Our economic and market outlook for 2022 emphasized the need for policymakers to strike a better balance between reining in inflation and supporting economic growth. Events so far this year have vastly increased policymakers’ challenges.

As Joe Davis, Vanguard’s global chief economist, explains in this video, soft landings—in this case, tamping down inflation to acceptable levels without choking off growth—are hard to achieve.

But recession isn’t a foregone conclusion in the world’s largest economies. This update to our 2022 economic outlook summarizes our views at midyear.

Is recession inevitable?

Joe Davis video on recession and if it's inevitable

Video length: 3:37

Recession probabilities for select regions

Vanguard believes that recession is more likely in the euro area and the United Kingdom than in the United States in the next 12 months, but that it becomes likely in all three regions in the next 24 months

Vanguard sees a 25% probability of recession in the United States in the next 12 months and a 65% probability in the next 24 months, given factors including the Federal Reserve’s tightening path and inflation eroding consumer purchasing power.  In the euro area, we see a 50% probability of recession in the next 12 months and a 60% probability in the next 24 months, given factors including the impact of the war in Ukraine, the European Central Bank’s tightening path, and tighter global financial conditions.  In the United Kingdom, we see a 50% probability of recession in the next 12 months and a 60% probability in the next 24 months, given factors including the Bank of England’s tightening path and a decline in after-inflation incomes.  In China, we see a 30% probability of recession in the next 12 months and a 35% probability in the next 24 months, given factors including the potential for further lockdowns related to China’s zero-COVID approach.
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Source: Vanguard, as of July 7, 2022.

Notes: All investing is subject to risk, including the possible loss of the money you invest.

A closer look

Map of the Americas

Americas

A U.S. “soft landing” is looking less likely with the Federal Reserve’s higher policy rate landscape.

Map of Europe

Europe

Our outlook for the euro area has been downgraded amid energy prices sent soaring by war.

Map of Asia-Pacific

Asia-Pacific

China’s growth target of about 5.5% is vulnerable given the weak labor market and slowing global growth.

Abstract image of balls leading into circle

10-year asset-class returns

Falling equity valuations and rising interest rates have largely increased our return forecasts.

Roger Aliaga-Diaz

Time-varying portfolios

Strategic asset allocation, not market timing, may benefit some investors given changing conditions.