Global Economic Outlook – September 2022 Pressures on global supply chains have eased since their Although inflationary pressures were already present as peak late last year, despite the setbacks caused by the economies reopened from Covid, the invasion of Ukraine by Russia-Ukraine war. However, they remain at historically Russia added an extra strain, with a range of commodities high levels, contributing to the rise in costs experienced by exported by the region seeing their price rise significantly. many producers. While we expect the weakening in global More recently, some prices have moderated somewhat economic activity to ease the pressure on supply chains and supplies have adjusted while demand eased as the in the short term, other factors could be working in the economy slows. opposite direction. Energy prices have been at the centre of the inflationary With geopolitical tensions on the rise, more friction in surge, although oil prices have moderated lately, which supply chains could become the norm. And as labor costs contributed to a minor ease in annual inflation figures in rise in less developed economies and changes in production many countries. Nevertheless, the price of gas remains methods in some industries favor more localized presence, heavily impacted by the conflict in Ukraine, with the rush to there may also be less impetus for companies to seek secure shipments of liquefied natural gas (LNG) for winter production sites further afield, causing globalization to be causing not just European but also Asian gas prices to spike on the retreat. All this could see inflationary pressures recently (Chart 3). It is still uncertain whether sufficient gas remaining more elevated over the longer term. supply will be forthcoming over the winter months. This could prove a significant blow to the short-term outlook Scarcity of workers has contributed to supply bottlenecks, of some European economies which are more reliant on as well as to more elevated inflationary pressures. As 2 Russian supply . Covid-induced restrictions were lifted, demand for labor rose sharply. But the availability of workers fell in many countries, as some were affected by the pandemic while others chose Chart 3: Gas prices are particularly to retire early. As a result, unemployment rates fell swiftly high across most regions and have now reached pre-Covid levels or even below (Chart 2). 600 While a weakening economic environment is likely to see 500 a fall in vacancies, the labor market could remain relatively 400 1 tight over the next year . 300 Chart 2: Tight labor markets add as price (monthly average), GBp/th200 to inflationary pressures 100 16% Wholesale g 14% 0 2015 2016 2017 2018 2019 2020 2021 2022 12% UK US Europe Asia 10% Source: Refinitiv Datastream, KPMG analysis. 8% 6% Unemployment rate 4% 2% 0% Eurozone Canada Switzerland US UK Australia Mexico Japan Pre-COVID COVID peak Latest Source: OECD, KPMG analysis. 1 See KPMG’s detailed forecasts for unemployment rates in the Appendix. 2 See our European country analysis for potential implications of lower gas supply in different economies. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 5