Global markets
ICYMI: Vanguard’s midyear economic and market outlook
July 21, 2022
Earlier this month, Vanguard issued its midyear economic and market outlook, a six-part package of insights for investors and advisors worldwide. In a short video, global chief economist Joe Davis summarizes our views on the challenge of curbing inflation and the potential for the world’s largest economies to sidestep recession.
Detailed economic assessments are available for three regions, and we also aim to help investors set realistic expectations for long-term market returns and to identify opportunities for investors willing to bear greater risk in pursuit of better performance.
Forecasted growth is muted within the United States, but the Canadian and Mexican economies appear relatively resilient. The U.S. Federal Reserve turned hawkish in its efforts to combat inflation, and yet rising rates may have implications for economic growth. Exports from Canada (energy) and Mexico (energy and agriculture) could boost each nation’s GDP but could also undermine consumer purchasing power.
The forecast for European economic growth has been downgraded twice—once before and once after Russia’s invasion of Ukraine. Energy prices and inflation continue to rise, particularly as euro zone nations consider non-Russian natural gas alternatives. How will the European Central Bank’s monetary policy affect inflation, consumer purchasing power, and a slowing economy?
China’s growth is falling short of our 5% forecast amid a weak domestic labor market, slowing global growth, and an economically debilitating zero-COVID policy. Meanwhile, soaring inflation and tightening financial conditions in Australia have lowered our forecast for economic growth by a percentage point.
Falling equity valuations and rising interest rates have largely raised our 10-year annualized developed market return forecasts by about 1 percentage point for stocks and 1.5 percentage points for bonds.
For investors with an appetite for risk, Vanguard’s time-varying portfolios can shift asset allocations as market and economic conditions change, ultimately increasing the likelihood that an investor may achieve a mid- or long-term financial goal.
A summary of our midyear update
Midyear is typically a time to recap and perhaps slightly revise our outlook. The first half of 2022 was marked by a series of major economic and market developments, which had a greater-than-usual impact on our midyear outlook. For a quick review, check out the Vanguard economic and market outlook: Midyear 2022 update [3-page PDF].
Related link:
- Vanguard economic and market outlook for 2022: Striking a better balance [59-page PDF, issued December 2021]
