Aviva Investors believes central banks see economic downturn as price worth paying to control inflation

Aviva Investors expects most developed economies to experience recessions over the coming year, as global central banks continue to tighten monetary policy to address persistently high inflation. Reducing inflation is policymakers’ priority, and economic slowdown or recession is considered a price worth paying.

The extent of downturns should be modest, however, as private-sector balance sheets are robust, meaning there is no need for significant de-leveraging and retrenchment. But growth risks remain, especially during winter months, as the impact of high energy prices and restricted supply is felt, especially in Europe.

The effect of the major supply-side shock after Russia’s invasion of Ukraine is still being felt, but central banks now feel they must restrict demand growth to the pace of constrained supply to counter the more underlying inflation impulse that now is compounding the impact of the energy-price spike alone.

The combination of slowing growth,