Sylvia Sheng

Macroscope | Despite increased market volatility as global growth slows, there’s no need to be too bearish

The crisis in Ukraine has exacerbated the by-now familiar issue of inflation in the US and Europe, and with Fed policy tightening on the horizon, global growth is likely to suffer

Yet, corporate and household balance sheets remain strong and China’s policy easing could help offset the drag on growth

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Fuel prices are displayed on petrol pumps, along with a sticker of US President Joe Biden, at a filling station in Virginia, US, on March 16. Photo: AFP

Sylvia Sheng

Published: 1:30pm, 1 Apr 2022

It has been a very volatile month for global financial markets. Concerns about the Russia-Ukraine conflict weighed on equities and government bond yields as energy prices rose.

With signs of positive diplomatic developments in Ukraine, equities have since rebounded substantially with most developed-market equities posting positive returns in March. At the same time, government bond yields rose sharply from their lows in early March as central banks adopted a more hawkish tone in response to high inflation.

Geopolitical tensions and monetary policy tightening amid sticky inflation are two key issues for investors, both of which have increased risks to the global economy in the near term.

In the weeks before the outbreak of conflict, global economic growth appeared to be rebounding from the wobble caused by the Omicron wave at the start of the year. The purchasing managers’ index rose sharply in February, with developed economies forging ahead.

Now, however, the crisis is likely to lead to even higher inflation and lower growth for major economies, owing to the rise in commodity prices.

On the growth side, higher commodity prices are expected to hit real household income and weigh on consumption. Europe is more vulnerable to higher prices for natural gas, as Russia accounts for 40 per cent of its supply, while around one-third of Russian gas exported to Europe passes through Ukraine. These rising costs will feed into electricity prices.