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Economics Update Mai 2022 – Global economy: unusually high uncertainty

Bad Homburg, 5/9/2022
by Axel D. Angermann
  • Russia conflict: Calming down or further escalation?
  • US economy: Risk of a medium-term recession as a result of monetary tightening
  • China: Can the leadership free itself from its own ideological trap?

The outlook for the global economy in the coming quarters is characterised by an exceptionally high degree of uncertainty because several sets of issues interact, for each of which different scenarios are conceivable.

Europe under the spell of war

From a European perspective, the continuation of the war in Ukraine is of crucial importance. In the best case, a quick pacification of the conflict would not only alleviate the suffering of the people in Ukraine, but also contribute to a normalisation of commodity prices and thus to economic development as a whole. Conversely, a further escalation of the war, especially an embargo on Russian raw materials or a supply stop from the Russian side, would certainly result in a recession in important countries of the currency area, including Germany and Italy, even if the depth of the slump can hardly be reliably estimated.

Wage growth drives inflation in the USA

The global economic outlook is largely determined by the further development of the US economy. While high inflation in Europe is mainly due to higher commodity prices, this is not the most important factor for inflation in the USA. Rather, it is the now very tight labour market there that has led to significant wage growth and thus rising inflationary pressure. Therefore, most observers expect a quick and strong monetary tightening on the part of the Fed, which is thus consciously accepting a reduced growth dynamic of the US economy. However, there is a significant risk that the economy will be slowed down too much and slide into recession. This would also have serious consequences for the euro area. Conversely, however, a positive scenario is also conceivable in which long-term interest rates in the USA do not rise any further, at least not for the time being, the already reduced growth momentum leads to lower wage increases and the Fed possibly raises interest rates less than currently expected.

Lockdowns slow growth in China

The third set of issues concerns China, whose economy will hardly grow in the second quarter as a result of the lockdowns in major cities and whose growth target of 5.5 per cent for the current year seems hardly achievable. A continuation of the strict zero-covid policy would not only have potentially disastrous consequences for China itself: The associated supply disruptions would further burden global trade and drive inflation. However, if one assumes that the Chinese leadership takes a rational approach and is able to find a way out of the self-inflicted ideological exaggeration of its own zero-covid policy, a stronger stimulation of its own economy and, as a result, a positive impulse for the global economy would also be conceivable.
Not all combinations of the scenarios outlined here make economic sense. However, there remain so many possibilities with very different economic effects that a very high degree of uncertainty will remain for the time being. This alone is not good news for the global economy, because it slows down consumption and investment.

About Axel D. Angermann

As Chief Economist of the FERI Group, Axel D. Angermann analyses the economic and structural developments of all markets that are important for asset allocation. This data forms the basis for the strategic orientation of FERI's asset investments.

Angermann has been responsible for the analyses and forecasts prepared by FERI for the overall economy and individual sectors since 2008. He joined the company in 2002 as an industry analyst. His professional career began at the Max Planck Institute for Economics and the German Chemical Industry Association. Angermann studied economics in Berlin and Bayreuth.

About FERI

Founded in 1987 and headquartered in Bad Homburg, Germany, the FERI Group has developed into one of the leading investment houses in the German-speaking area. FERI offers tailor-made solutions for institutional investors, family assets and trusts in the following areas:

The FERI Cognitive Finance Institute was formed in 2016. It is the strategic research centre and creative think tank of the FERI Group. The Institute focuses on innovative analyses and the development of methods for long-term oriented economic and capital market research. 

FERI and MLP currently manage assets of about EUR 56.6 billion in the Group, including EUR 15.4 billion in alternative investments. The FERI Group is headquartered in Bad Homburg and has locations in Dusseldorf, Hamburg, Luxembourg, Munich, Vienna and Zurich.

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Marcel Renné

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D-61348 Bad Homburg

Axel Angermann