Baseline Macroeconomic Scenarios for Rated Sovereigns: September 2022 Update

This commentary provides an update to DBRS Morningstar’s Baseline Macroeconomic Scenarios. These baseline scenarios provide our estimate of the current market consensus, and are drawn from a simple median calculation across various external contributor forecasts. In this update, we discuss the ongoing monetary tightening and growing risks of recession.

Key Highlights

• Baseline forecasts are becoming increasingly bearish, particularly the outlook for 2023. High inflation, energy and labor shortages, and rising interest rates are key contributors to the gloomy global forecasts.
• Near term risks to inflation are tilted toward the upside, but central bank actions will begin to take greater effect over the next few quarters.
• Risks of a recession are elevated and asset prices may come under increasing pressure, but financial stability risks appear to be contained.

“In most advanced economies, forecasters expect unemployment to rise only slightly or remain unchanged,” notes Thomas Torgerson, Co-Head of Sovereign Ratings at DBRS Morningstar. “This assumption may be challenged in coming months, particularly if inflation remains stubbornly high and central banks remain hawkish.”