During periods of market volatility, firms specializing in financial advice and wealth management often overlook the importance of forward-looking forecasts. Leading economist Leopold Torralba of Arcano Partners argues that central banks will need to balance rate hikes with the goal of sustaining growth and containing inflation. He believes uncertainty will persist, but that the most severe recession scenarios are unlikely in the near term. He also anticipates a potential shift away from globalization in response to the Ukraine conflict.
As the pandemic continues to reverberate through supply chains and energy markets, a common question arises: what should governments do to ease fiscal pressure while keeping space for recovery?
From a monetary perspective, the aim is to maintain policies that neither push inflation higher nor dampen growth unduly. If long-run inflation expectations remain volatile, hiking rates excessively or keeping them far above a neutral level could restrain growth too sharply. In North America and Europe alike, policymakers are expected to raise rates steadily but avoid extreme levels that could stifle demand.
On the fiscal side, governments should shield the most affected households and firms with targeted relief. This could take the form of temporary tax relief, subsidies, or wage support, coupled with a coordinated European-style recovery fund or a more expansive asset purchase program by the central bank to stabilize markets as needed.
Will the central banks of developed economies ease borrowing conditions and lower rates as some forecasts suggest, even in light of global warnings about potential spillovers to developing economies?
The initial rate increases appear justified, with the United States facing higher inflation and growth expectations than Europe. Nevertheless, projections suggest only gradual rate rises in many regions. Inflationary pressures outside energy may ease, and central banks are likely to reduce asset purchases as conditions normalize across economies. Debt purchase programs would be adjusted accordingly as public debt ratios remain a key concern for long- term growth.
In practice, central banks may still provide flexibility. If growth weakens or bond yields rise sharply, they could resume asset purchases to stabilize debt markets. Given high debt-to-GDP ratios and the risk to potential growth, the preferred path remains moderate interest rates and inflation anchored toward the 2% target for a time, with allowance for deviations if needed to support economic momentum.
Is there a risk that the combined impact of pandemic aftermath, energy volatility, and geopolitical tensions could push economies toward stagflation or recession?
The typical expectation is to avoid both outright stagflation and a protracted recession. The post-pandemic recovery still carries inertia, savings buffers remain sizable, and easing restrictions should curb demand shocks. While energy-driven price pressures may persist, demand and supply should gradually rebalance. A soft-to-moderate path of inflation is projected, with growth stabilizing as housing markets adjust to higher mortgage costs and construction expenses settle. By late 2023 and into 2024, inflation is forecast to ease toward normal levels in many regions while growth stabilizes.
How have investors reacted to the sequence of crises that have unfolded in recent months?
Uncertainty ranks highest among investor concerns. Early market weakness in equities often gave way to partial recoveries, but volatility remains a defining feature. In the near term, cautious positioning and diversified strategies appear prudent as風 market sentiment continues to hinge on policy signals and geopolitical developments.
What outcomes might unfold for sectors that directly affect everyday life, such as healthcare or real estate?
A number of structural shifts are anticipated. The healthcare sector could benefit from heightened public health awareness, while real estate may face mixed pressures. Construction costs and higher borrowing costs could temper housing activity in the near term, but long-term fundamentals—such as solid household formation, stable rents, and favorable financing conditions—could support demand. Banking sectors with strong balance sheets are expected to weather higher rates, and housing markets may offer attractive returns in regions with steady job growth and demographic balance.
On the industrial side, defense and renewable energy sectors are positioned to gain, driven by strategic priorities to reduce energy dependence and strengthen national security. Some manufacturers may relocate portions of supply chains to near-market sites to enhance resilience and supply reliability in the face of global uncertainty.
What about globalization in the wake of sanctions and disruption?
Global trade patterns may recalibrate rather than collapse. The West has highlighted the risks of over-reliance on unstable regions for energy and raw materials. At the same time, major economies are likely to seek a balance—maintaining interdependence with strong partners while building more robust regional capabilities. The result could resemble a multi-bloc world order, with the United States, Europe, and parts of Asia pursuing deeper regional collaboration while minimizing exposure to single-point vulnerabilities. The outcome will depend on policy choices, energy diversification, and strategic resilience efforts made by governments and businesses alike. The underlying lesson remains clear: resilience and prudent risk management are essential in navigating a shifting global landscape.