KPMG Global Economic Outlook - H2 2022 report

Global Economic Outlook September 2022 home.kpmg/globaleconomicoutlook

Global Economic Outlook – September 2022 Introduction 2022 has arguably been one of the most challenging years the world has experienced in modern times. It’s hard to downplay the scale of the geopolitical and economic uncertainty facing every one of us – from individual households to governments and business leaders. We entered the year with a degree of Combined with the devastating war cautious optimism as Covid restrictions in Ukraine, C-suites are grappling with were gradually eased, but what shortages in everything from oil and followed was a series of challenges that gas to wheat and microchips. This have tested the resilience of even the has had a significant impact on both most robust, sustainable companies. inflation and recessionary fears. Economic modelling and forecasting In my previous role with KPMG, I led is a notoriously challenging task, the global organization’s Energy & especially in a time of great uncertainty, Natural Resources practice – supporting but taking a step back and looking member firm clients in an industry at the bigger picture is essential. that has become used to experiencing KPMG’s Global Economic Outlook profound highs and lows. I now work brings together teams of experts from with CEOs across all sectors as Global across the world. Our aim? To dig Head of Clients & Markets and much deeper into past trends, challenges of what I witnessed in the energy and opportunities and explore how we world is applicable today across all believe the actions that are taken today businesses. KPMG’s Global Economic may impact on economic output over Outlook is not an exact science, but the coming weeks, months and years. in a time of great unease, I believe it is an invaluable asset, helping to The international outlook is patchy. map out some of the challenges Some countries, regions and territories and opportunities ahead and enable achieved a strong post-pandemic corporate leaders to plan for the future rebound, for others – chronic political and prepare for an eventual return to and economic challenges dampened sustainable, long-term growth. hopes of regaining lost ground. It’s a similar story across all areas of analysis – with different outlooks and Regina Mayor outcomes in different areas. That said, Global Head of Clients & Markets there are several universally consistent KPMG themes and stories. The rapid return to economic activity after Covid created supply chain challenges which appear to be easing slightly but continue to drag down growth projections. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 2

Global Economic Outlook – September 2022 Contents The global outlook: High inflation takes its toll 04 Countries and regions in focus: • United States: Economy poised to stall 07 • Canada: On path for a mild, short-lived recession amid global uncertainty 10 • Brazil: Government balance creates risks 13 • Mexico: Stable but surrounded by risks 15 • ASEAN: Global headwinds weighing on trade in the region 17 • China: Covid, property market and policy supports 20 • Japan: Loose policy keeping the yen down, adding to inflation 23 • India: Driving growth on the back of inflation control 26 • Australia: Mounting headwinds set to weigh on growth 28 • Germany: Europe’s biggest economy threatened by recession 31 • Austria: Strong energy headwinds – and fiscal support 33 • France: A costly shield from inflation 35 • Italy: Misty outlook amid mounting headwinds 37 • The Netherlands: Inflationary squeeze weighs on economic growth 39 • Ireland: Recent momentum, stumbles against headwinds 41 • Switzerland: Resilient, but not immune to shocks 43 • UK: Economy marred by stagflation 45 • Central and Eastern Europe: Not a uniform story 48 • South Africa: A growth recession as inflation rises 51 • Nigeria: Sustaining positive growth amid low oil production and rising inflation 53 Appendix: KPMG country forecasts 55 © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 3

Global Economic Outlook – September 2022 The global outlook: High inflation takes its toll Clouds are once again gathering, marring the outlook Chart 1: The impact of the Covid-19 pandemic for the global economy. As inflation accelerates, putting and the speed of recovery have been uneven pressure on households’ finances and businesses’ margins, and causing central banks to tighten monetary policy 15% aggressively, recession is once again on the horizon in 10% many economies. 9 Q4 5% 1 It was not long ago that the Covid-19 pandemic brought a ve to 200 big part of the economy to a halt, and while the recovery -5% has been relatively swift once restrictions were lifted, its strength has varied across countries (Chart 1). -10% -15% With all the new challenges so far this year, it is easy to Changes in GDP relati forget that the virus has not yet disappeared. We could see -20% a rise in infections over the colder months, including more -25% disruptions to production in China due to the zero-Covid India China Australia US Italy France UK Japan Germany policy. The impact on labor supply and the health service COVID trough Latest is also likely to linger, causing a tighter labor market and additional burden on public finances in the medium term. Source: National statistics bodies, KPMG analysis. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 4

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

Global Economic Outlook – September 2022 The combination of supply chain bottlenecks, generous Chart 4: Central banks are expected to government spending, tight labor markets and a remain hawkish in the short term commodity shock triggered by the Russian invasion of Ukraine, have together caused inflation to shoot well above 7% central banks’ target across many developed economies. 6% We expect inflation to moderate significantly from the 5% middle of next year, as the energy shock is no longer 4% reflected in the year-on-year inflation calculation. However, 3% we could be entering an environment that is structurally Interest rate more inflationary, as production costs – from materials to 2% energy and labor – remain elevated. 1% 0 Faced with inflation well above targets, an immediate concern for most central banks is that inflation -1% 2018 2019 2020 2021 2022 2023 expectations stay high, while their credibility in fighting inflation is lost. The need for fiscal support is likely to stoke UK US Eurozone more inflation in the medium term, placing fiscal policy Source: BIS, FRED, Refinitiv Datastream, Bank of England, ECB, KPMG analysis. actions at odds with the aims of central banks in meeting Note: Yield curves shown as of 26 September. their mandates. In the cases where investors have been led to question the sustainability of public finances, such Chart 5: Consumer confidence has fallen as the UK in late September 2022, depreciating currencies and rising borrowing costs have exposed vulnerabilities and 40 increased the risk of contagion. 30 That is why central banks are likely to be more hawkish 20 in their response to what could be a relatively short-lived 9 average 10 2-1 1 0 burst in inflation, with markets pencilling in aggressive rate rises over the coming months (Chart 4). -10 -20 Moreover, if inflationary pressures are to become -30 embedded, interest rates may stay at higher levels -40 than what we saw in the past decade even after the Deviation of index from 20 -50 current spike in inflation subsides. This would represent -60 a significant shift in monetary policy in a relatively short Jan Jul Jan Jul Jan Jul Jan Jul 2019 2019 2020 2020 2021 2021 2022 2022 space of time. UK US France Germany India Australia Japan China Rising costs are taking their toll on consumers, with a Source: GfK, The Conference Board, Cabinet Office of Japan, INSEE, Westpac-Melbourne Institute, cost-of-living crisis putting a significant dent on households’ China National Bureau of Statistics, Reserve Bank of India, KPMG analysis. purchasing power. Consumer confidence has taken a big knock across most economies (Chart 5) and spending are Chart 6: World GDP growth and inflation projections following suit, causing overall economic growth to weaken. 8% Our overall forecast for the world economy is for GDP growth to moderate to 1.9% in 2023 after growth of 2.7% 6% in 2022. Weaker growth could see inflation moderate to 4% 4.7% in 2023 after averaging 7.6% in 2022, according to KPMG forecasts (Chart 6). But as economies around hange 2% the world brace for another period of headwinds and slowdown in activity, the hope is that on this occasion the Annual % c0% downturn will be relatively mild. -2% Forecast -4% Yael Selfin 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Chief Economist, KPMG in the UK GDP Inflation Source: World Bank, KPMG projections. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 6

Global Economic Outlook – September 2022 United States: Economy poised to stall The Federal Reserve has Economic growth is expected Fiscal stimulus is expected to committed to raise rates and to slow below the economy’s remain limited as pandemic aid hold them high for longer, to potential rate of growth, wanes and infrastructure projects slowly bring inflation back to employment is expected to take time to ramp up. Midterm its 2% target. The goal is to stall and lose ground as we get elections will play a key role in prevent a more entrenched into 2023. The unemployment determining whether the White and persistent cycle of inflation rate is expected to cross 5% House can deliver more on its from taking root with a mild by year-end 2023 and 5.5% promises to curb climate change but prolonged recession. before inflation fully cools. and deal with social issues. Overall economic growth hit a wall in 2022, after surging at Table 1: KPMG forecasts for the U.S. its fastest pace since1984 in 2021. Real GDP contracted for 2021 2022 2023 the first two quarters of the year; a phenomenon usually associated with a recession. The U.S. is not in a recession, GDP 5.7 1. 5 -0.1 yet. Payroll employment surged by 2.8 million jobs in the Inflation 4.7 8.2 3.8 first six months of the year, twice the annual pace of the 2010s. Consumer spending slowed but did not collapse. Unemployment rate 5.4 3.7 4.3 That means that the losses we endured did not meet the Source: KPMG Economics, Bureau of Economic Analysis, Bureau of Labor Statistics. depth and breadth of losses typically associated with a Note: Forecasts are dated as of September 2, 2022. GDP and inflation are year-over-year % change. recession by the Business Cycle Dating Committee of the The unemployment rate is an annual average. Numbers are percentages. National Bureau of Economic Research (NBER), the official arbiter of business cycles. That begs the question: Why do most Americans believe we were in a recession? Because the surge in inflation that they experienced eroded all they had gained in wages since the economy reopened and then some. Rate hikes and the collapse in housing are expected to take a larger toll on consumer spending by the turn of the year. Home sales and construction activity have already cratered; housing prices will be the next shoe to drop. Housing is one of the single largest triggers to additional consumer spending; now, it is working in reverse. Business investment is expected to contract after playing catch-up to supply chain delays over the summer. Spending on structures and equipment will be hardest hit. Spending on intellectual property, automation and cyber security is expected to remain buoyant. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 7

Global Economic Outlook – September 2022 The pandemic aid that buoyed federal spending in 2020 Inflation slowly cools and 2021 has come to an end, while much of the spending associated with the infrastructure bill and efforts to A perfect storm of strong demand, supply chain disruptions deal with climate change will take time to ramp up. The and the war in Ukraine created the largest move up in full effects of those latter shifts will not be felt until the inflation we have seen in more than four decades. A strong mid-2020s. dollar, a drop in prices at the gas pump and some easing State and local government coffers are in better shape. Tax of supply chain disruptions have alleviated the upward revenues shot up with the surge in spending on goods and pressure on some goods prices. Used vehicle prices are homes, while transfers from the federal government to deal once again depreciating after soaring above the sticker price with the pandemic have yet to be spent. Many of those of new vehicles in 2021. windfalls were put into rainy-day funds to cushion budgets The jury is still out on how long energy prices can remain from future claims on revenues. low. Much depends upon supply constraints, which remain A portion is being used to temporarily suspend taxes on substantial, and how far the Russian government is willing energy, food and school supplies. Those shifts and a surge to go to weaponize its oil reserves. Investors pushed shale in tax rebates is helping to blunt the blow of persistently producers to curb their expansions and return more of high inflation and keep spending afloat. That makes for good their profits to the owners of capital in the shale industry, politics but bad economics; tax rebates are poorly targeted after the bath they took at the onset of the crisis. Neglect and will boost demand at the same time the Federal of energy infrastructure is another hurdle to increase Reserve is trying to curb demand and inflation. production at home and abroad – refining capacity is particularly limited. A strong dollar and weaker growth abroad suggest that A larger issue is service sector inflation, which is more the trade deficit will reverse course and widen by year- dependent upon the cost of labor. High wages, high end. A sharp slowdown in growth here is not expected to turnover rates and a persistently high level of Covid offset the drag of even deeper recessions abroad. Imports infections, which is exacerbating staffing shortages, are should continue to outpace exports and the trade deficit is boosting labor costs. Aging demographics and a surge in expected to widen in 2023. Long Covid cases are adding to labor shortages and will make those shortages more chronic as we get into the Chart 7: U.S. growth stalls below trend mid-2020s. 22 This is happening at the same time as the boost to productivity growth triggered by the pivot to working from ecession ecession CBO 2020 home is evaporating; workers are using more of the time 21 R R Projection they saved by not commuting to engage in leisure activities. rillions20 The payoff to technological advances remains concentrated T Forecast in a few large tech-savvy firms. It is not yet diffuse enough , 2021 $, 19 to raise the level of overall productivity growth and offset GDP Actual the shortfall in labor due to aging. A surge in retirements 18 by the baby boom generation and early retirements is not being offset by younger workers entering the labor force. An 17 additional two to four million workers are estimated to be Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 suffering from Long Covid and are unable to work. 2019 2020 2020 2021 2021 2022 2022 2023 2023 2024 2024 Source: KPMG Economics, Bureau of Economic Analysis. A surge in immigration could help alleviate those pressure but doesn’t seem likely. The backlogs to immigration created by the pandemic are still substantial, while immigration reform remains on hold. Foreign students, who are dwindling in ranks, are looking for guarantees that they can continue to work in the U.S. once they relocate. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 8

Global Economic Outlook – September 2022 The largest near-term push on inflation is shelter costs. The Fed commits to a recession Changes in home values take at least a year to show up as a change in measures of home ownership costs; they were Federal Reserve Chairman Jay Powell laid to rest the fantasy still accelerating through spring 2022. Rents, where demand of a soft landing in his annual speech for the Kansas City has shifted in recent months, continue to skyrocket. Shelter Federal Reserve Bank’s Jackson Hole, Wyoming Symposium costs are particularly problematic, as they account for nearly held in August. Either the Fed runs the risk of stoking a a third of the consumer price index and are still rising. more entrenched and corrosive cycle of inflation, which Acute labor shortages, a surge in more chronic and costly requires a deep and scarring recession to derail, or it health conditions and the costs associated with treating triggers a mild but prolonged recession and smaller increase Covid patients are putting upward pressure on medical in the unemployment rate today. The latter represents the costs. Rural hospitals are the most vulnerable. Consolidation lessor of two evils. is accelerating, which will further increase costs and limit The Fed can’t grow food or pump oil. It can reduce demand access to care. to better balance with what is becoming a more chronically Last, but by no means least, inflation is inertial. Long undersupplied world; that is what it intends to do. periods of high inflation tend to distort the behaviors of households and firms. Workers demand wages be indexed to move up with measures of inflation, while firms start Diane Swonk baking price hikes into their strategies to cover elevated Chief Economist, KPMG US costs. That phenomenon stoked the stagflation of the Timothy Mahedy 1970s, a period the Fed wants to avoid, even if it means a Senior Economist, KPMG US rise in unemployment. Chart 8: U.S. unemployed persons per job opening 700 Slack labor market 600 500 t of recession400 0 = star300 0 200 Index, 1 100 Tight labor market 0 2 4 6 8 10 12 14 16 18 20 22 24 Months since start of recession 2001 recession 2008 recession 2020 recession Source: KPMG Economics, Bureau of Labor Statistics. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 9

Global Economic Outlook – September 2022 Canada: On path for a mild, short-lived recession amid global uncertainty The economic slowdown underway Inflation may have peaked but will Provincially, Ontario’s labor will likely continue in the next few remain elevated relative to target market keeps posting months, responding to tighter monetary due to tight labor markets and robust growth, Alberta policy and slowing aggregate demand. uncertainty related to commodity is benefiting from strong While the labor market remains strong, prices. Avoiding a wage-fueled demand for Canada’s and despite increased savings since inflation remains a priority for energy products, and 2020, household debt, especially for global central banks while longer- Québec and British first-time home buyers, remains a risk term inflation expectations have Columbia are facing broad to the outlook. remained stable. labor shortages. Mild, short-lived, recession Table 2: KPMG forecasts for Canada may occur in early 2023 2021 2022 2023 GDP 4.5 3.4 1. 3 Covid variants have come and gone, and Canada’s GDP has Inflation 3.4 6.8 3.4 recovered and stabilized above its pre-pandemic level. After Unemployment rate 7. 4 5.3 5.6 rebounding 4.5% in 2021, GDP growth expectations for this year and next have been revised down in recent months. Source: Statistics Canada, KPMG analysis. While another cycle from the ongoing pandemic could still Note: Average % change on previous calendar year except for the unemployment rate, disrupt Canada’s growth engine, restrictions for this coming which is the average annual rate. winter are anticipated to remain lighter than they have been in recent years. Some analysts are now forecasting a 1 The main catalyst for these downgraded expectations has short-lived recession for early 2023 . been the coordinated approach taken by global central banks to fight the current bout of inflation by slowing the demand side of the economy. In July, Canada’s overnight rate increased by 100 basis points (bps). The following hike of 75 bps on September 7th took the overnight rate to 3.25%, for a yearly tally of 300 bps so far – a pace of monetary tightening not seen since the mid-1990s following close to 15 years of accommodative monetary policy. Markets are pricing in another 50 bps hikes during the fall, as the Governing Council “judges that the policy interest rate will need to rise further”. It also stated that further changes in 2023 “will remain data-dependent”. In a rising rate environment, governments, consumers, and businesses will find their debt more expensive to roll over. Canadian residential real estate prices have already started feeling the pinch of tighter monetary policy. While higher rates will cause the economy to gradually slow, most analysts expect Canada to eke out positive growth for 2023, albeit at a rate slightly below potential. 1 See, for example: Desjardins, Economic and Financial Outlook (August 25, 2022); and RBC, Daily Economic Update (August 31, 2022). © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 10

Global Economic Outlook – September 2022 Here are some reasons to think Canada will achieve only a Uncertainties and opportunities ahead mild, short-lived, recession: • Labor markets remain steady, which does not align with In the current high energy price environment, Canada’s a deeper recession – the national unemployment rate energy exports remain strong, displaying month-on-month is close to an all-time low and more than a million jobs increases during the first six months of 2022, with a jump remain unfilled; of 25% in Q2 over Q1. The energy sector, which now takes up a 30% share of all Canadian merchandise exports, is • Households have accumulated excess savings during contributing significantly to Canada’s total merchandise the first two years of the pandemic, somewhat trade growth (see Chart 10). counterbalancing elevated domestic debt-to-income ratios in some key housing markets; • Canadian banks are well capitalized, which points to Chart 10: Energy exports, a key contributor to limited systemic downside risks; Canada’s merchandise exports growth • Canada’s energy sector, a key contributor to the country’s 80 economic growth, continues to increase its exports in the 70 face of higher commodity prices; and 60 • Different levels of governments are still enacting relatively 50 loose fiscal policy. 40 $, billions Inflation to remain elevated in the short run, 30 25-30% of all exports winding down towards target over time 20 10-15% of 10 all exports Inflation is expected to have peaked at an annual rate of 0 8.1% in June. While overall inflation decelerated to 7.6% in Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2020 2021 2022 July, core inflation (excluding food and energy prices) still inched up to reach 5.5% (see Chart 9). With shelter costs Total of all merchandise Energy products expected to contribute more to inflation in the coming Source: Statistics Canada, KPMG analysis. quarters, most forecasters expect inflation to remain above the BOC’s 1-3% target range into Q4 2023. Strong demand for Canada’s energy products may enable more significant investments and growth opportunities in Chart 9: Inflation has likely peaked in Canada Canada’s energy sector. Western provinces, particularly Alberta, are already reaping the benefits with increased 9% capital spending in the oil and gas sector. Yet, domestic oil 8% and gas producers are also maintaining capital discipline as 7% the investment to cash flow ratio remains in check. 6% 5% Supply chains may continue to be put to the test as zero- hange Covid policies in key manufacturing countries may keep 4% 3% some key businesses on hold. This volatility may in turn CPI , y/y c have an outsized impact on exporters and importers as 2% they deal with an unreliable flow of goods. Nevertheless, Bank of Canada’s target range 1% with recent suspensions in vaccine mandates for domestic 0% travelers and a general easing of restrictions globally, -1% restrictions for this coming winter are anticipated to remain Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2020 2021 2022 lighter than they have been in recent years. Thus, the impact All items Excluding food & energy of Covid on economic activity is not expected to pick up significantly over the forecast horizon. Source: Statistics Canada, KPMG analysis. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 11

Global Economic Outlook – September 2022 Tight labor markets will keep pressuring services inflation Excess savings from Canadians since 2020 are likely for some time. By mid-2022, there were more job openings to prevent any economic slowdown from turning into a in Canada than available workers. Employment rates quickly protracted recession. Retail sales have so far remained rebounded since the first wave of the pandemic and have robust in the face of global uncertainty. reached historic highs for all age cohorts (see Chart 11). Job creation has however been muted since February. On the downside, Canada’s economy remains open to global economic trends and uncertainty. For one, European consumers may be forced to cut back on discretionary Chart 11: Very little slack in the Canadian labor market spending given the expected higher energy prices in the coming months, which may contribute to a further global 90% economic slowdown. As the adage also goes, when the U.S. sneezes, Canada catches a cold – any pothole in the 80% U.S. economy would also have implications for Canada’s growth path. 70% A higher inflation for a longer period of time may incentivize central banks to tighten monetary policy further. Combined 60% with vulnerabilities coming from Canadian household debt Employment rate, % levels, this may represent a downside risk to this outlook. 50% As households may have to tighten their spending in the face of increasing interest rates, a correction in Canadian 40% real estate prices may also lead to negative wealth effects 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 that affect the economy at large. Men, aged 25-54 Men, aged 55-64 Women, aged 25-54 Women, aged 55-64 Another key downside is that inflation expectations become Source: Statistics Canada, KPMG analysis. entrenched at a higher level, which may trigger further monetary policy tightening. The prospect of a wage-price Some further gains on labor markets may occur as spiral remains a tail-end scenario, as various surveys point Canada implements a national daycare system akin to the to relatively stable inflation expectations over a five-year 2 one established in Québec in the late 1990s, which has horizon . contributed to the province showing one of the highest All in all, central banks are committed to taming inflation – participation rates in the world among women of child- the benefits of a stable low-level of inflation having been bearing age. However, the program’s contribution to made clear since the early 1990s. This may come at the cost alleviating the undersupply of workers can be expected to of a mild recession. take time. A more ambitious immigration target, after two years of lower intakes due to the pandemic, is more likely to relieve stress in the short run. Sonny Scarfone Manager, Economics & Strategy at KPMG in Canada Economies facing elevated Karicia Quiroz uncertainty for the near future Manager, Economics & Policy at KPMG in Canada While only a mild recession is the base case scenario for Mathieu Laberge the Canadian economy, there are risks to this forecast. Partner, Economics & Policy at KPMG in Canada On the upside, a decline in supply chain bottlenecks may Caroline Charest reverse some of the increase in prices we have seen in the Partner, Economics & Strategy at KPMG in Canada past 18 months. Retailers are reporting elevated inventories, while intermediary goods accumulation in manufacturing facilities dissipated throughout 2022. 2 Canadian Survey of Consumer Expectations—Second Quarter of 2022. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 12

Global Economic Outlook – September 2022 Brazil: Government balance creates risks Consumption experienced Central government is continuing The proposed budget poses a growth in the first half, but stimulus while the central bank major risk to the government’s momentum is slowing. tries to tackle inflation. ability to counter slowing growth. The Brazilian economy advanced 3.2% year-over-year in Q2, Table 3: KPMG forecasts for Brazil the sixth consecutive quarter of economic expansion, driven 2021 2022 2023 by household consumption and government expenditures. Trade and investment have both been a drag on economic GDP 4.8 1. 9 0.8 growth, as exports dropped dramatically. Key to the outlook Inflation 8.3 9.8 5.8 for Brazil is the fiscal balance – and whether it is sustainable post-2022. Looking forward, we expect growth to slow in Unemployment rate 13.6 10.4 10.1 2023 as inflation continues to weigh on households while Source: KPMG Economics, Instituto Brasieiro de Geografia e Estatistica. monetary policy remains contractionary. Note: Forecasts are dated as of September 1, 2022. GDP and inflation are year-over-year % change. The unemployment rate is an annual average. Numbers are percentages. Growth in government expenditures is painting over underlying weaknesses in the economy. Corporate tax revenues have surged, which improved the government’s balance sheet and allowed for continued fiscal stimulus at levels similar to the 2020 pandemic-era. This has boosted household spending even as high inflation erodes real incomes, and the central bank continues to tighten monetary policy to control inflation. Fiscal stimulus is likely to retreat in the next few quarters, which will reveal an economy that is facing the potential for a significant slowdown in economic activity in 2023. Chart 12: Brazil’s government expenditures far exceed pre-pandemic averages $800 $600 $400 $200 0 vernment Balance, Billions R$ -$200 -$400 Central Go-$600 -$800 2016 2017 2018 2019 2020 2021 2022 Central government expenditures Central government revenues Deficit Source: KPMG Economics, Secretaria do Tesouro Nacional. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 13

Global Economic Outlook – September 2022 Even though fiscal stimulus is likely to be withdrawn, Brazil is heavily integrated in global trade, making net the deficit is set to worsen on falling revenues. Falling exports key to Brazil’s outlook. Between 2011 to 2021, revenues matter for Brazil’s fiscal capacity – the government trade averaged 28% of GDP for Brazil, according to the bases its target budget deficit on projected GDP growth. World Bank. Brazil’s exports have suffered from supply chain Brazil’s congress approved a target deficit based on their and infrastructure disruptions as well as poor harvests in own GDP projection for 2023 of 2.5% and much stronger agricultural industries. Higher oil and gas prices precipitated government revenues, compared to market expectations of by the Russia-Ukraine war also weighed on exporters of 0.8%. The budget leaves little room for Brazilian lawmakers non-petroleum products – Brazil imports more refined to counteract slowing growth should a recession occur petroleum than it exports, and non-petroleum products in 2023. constitute over 80% of export value. Brazil’s exporters will also likely be facing a global slowdown in the coming The persistence of inflationary pressures means that the quarters decreasing external demand. Meanwhile, imports central bank will be unable to provide monetary policy from the U.S. and China have increased in recent quarters support as the economy slows. The Brazilian economy has due to increasing domestic demand, creating a drag on been hit by its worst bout of inflation since 2004, forcing overall net exports as a share of GDP. However, this trend the central bank to increase the policy rate starting in March may reverse as overall demand in Brazil slows. 2021. Despite Brazil’s CPI inflation coming down to 8.7% in August amid falling crude oil prices, transport, and energy Though GDP and unemployment have showed signs of prices, the central bank will need to continue tightening improving in the first half of 2022, the economy is likely policy to bring down inflation. to begin slowing due to high interest rates and continuing inflation. Tighter credit conditions, a global slowdown, and High inflation is beginning to erode household spending in worsening terms of trade are also likely to weigh on Brazil’s Q3 despite a strong labor market. While consumption has already slowing net exports. Retreating fiscal stimulus in been driving Brazil’s recovery in 2021 and 2022, retail sales the coming quarters will reveal an economy that is facing a have been slowing over the summer. This trend indicates significant slowdown in 2023, with little room for maneuver that consumers may be feeling the impacts of higher Selic from either the fiscal or monetary policy side. rates from the Central Bank of Brazil. The unemployment rate decreased to its lowest level since 2015 and is falling, somewhat mitigating the impacts on high inflation on Meagan Martin real incomes. Economist, KPMG US © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 14

Global Economic Outlook – September 2022 Mexico: Stable but surrounded by risks Compared to other emerging markets, In case of a The central bank’s Mexico has been a laggard in economic recession, Mexico response to inflation has growth. With or without a recession in late has the fiscal space been strong, with rates 2022 or early 2023, the long-term outlook for a countercyclical expected to hit 9.5% by for Mexico remains about 2%. policy response. the end of 2022. Growth in Mexico is expected to slow over the remainder of Table 4: KPMG forecasts for Mexico 2022, even though the first half of the year surprised to the 2021 2022 2023 upside. GDP is expected to come in at 1.7% year-on-year after rising by 5% in 2021. The level of economic activity is GDP 5.0 1. 7 1. 5 expected to be 2% below its pre-pandemic level by the end Inflation 5.7 8.0 5.5 of this year. Public and private investment have been a drag on growth. The Mexican economy is currently 7% below the Unemployment rate 4.1 3.5 3.8 growth trajectory it was on before Covid hit. A slowing U.S. Source: KPMG Economics, National Institute of Statistics and Geography (INEGI). economy will further impact growth prospects in Mexico Note: Average % change on previous calendar year except for unemployment rate, due to close trade relations. which is average annual rate. Compared to other emerging markets, Mexico has been a laggard in economic growth. Prior to the pandemic, Chart 13: Growth in Mexico remains below trend Mexico’s growth had been rising at a meager (compared to its Latin American counterparts) 2% per year. With or 21 without a recession in late 2022 or early 2023, the long-term Recession Pre-pandemic outlook for Mexico remains about 2%. 20 trajectory rillions19 Consumer spending is over two-thirds of the economy and T has been rising steadily since the pandemic slump in early eso, 18 2020. With inflation at multi-decade highs, retail activity has Forecast been hit in recent months, but remains above pre-pandemic 17 3 Mexican P levels for now due to strong consumption and a return of 1 , 20 16 Actual tourism (which accounts for 15% of GDP). GDP 15 The unemployment rate hit 3.3% in July 2022 – a 14 pre-pandemic low. Wage growth remains strong, while 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 remittances hit a record high in 2022 and are expected to Source: KPMG Economics, INEGI/Haver Analytics. keep rising. Remittances are a crucial source of income for Mexican households, adding up to about 3.9% of GDP in 2020. The unemployment rate is expected to move up into next year and 2024 as the central bank continues its tightening cycle. By the end of 2022, the unemployment rate will likely hit 3.5%, with 2023 averaging 3.8%. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 15

Global Economic Outlook – September 2022 Exports are expected to grow by 9.6% in 2022 and slow Chart 14: Mexico has more fiscal space down to 4% in 2023. Strong demand from the U.S. than most of its neighbors consumer for cars, along with an uncoiling of supply chains, has helped this year. Mexico is an oil exporter and 90% has benefitted from higher oil revenues in 2022 as prices 80% 81% skyrocketed. This has helped offset the 2% of GDP the 80% 70% government spent on fuel subsidies. Additionally, imports 65% are expected to grow by 8% in 2022 and slow down to 60% 3.7% in 2023. 50% 51% 40% Pre-pandemic political reforms from the current government % Debt to GDP 36% 36% 30% tightened the fiscal belt during a time when other governments were funneling funds to their troubled 20% sectors. The silver lining is it allowed the country to keep 10% its low investment grade debt rating. However, investment 0% has been poor, as fiscal reforms have pushed out Argentina Brazil Colombia Mexico Chile Peru private investment. Source: KPMG Economics, Ministerio de Economía y Finanzas Públicas, Banco Central do Brasil, Banco Central de Chile, World Bank, Departamento Administrativo Nacional de Estadísticas, Bank of Mexico, Instituto Nacional de Estadística Geografía e Informática, International Monetary Fund/ Mexico’s public deficit will hit about 3.1% of GDP in 2022. Haver Analytics. A positive fiscal impulse has allowed Mexico’s government to provide fuel and energy subsidies to households in the first half of the year; the windfall received from rising oil The central bank’s response to inflation has been strong, prices has allowed the spending to net out. In case of a with Banxico’s August meeting resulting in a 75 basis point recession, Mexico has the fiscal space for a countercyclical hike to 8.5%. Rates are expected to hit 9.5% by the end policy response. However, Mexico did not enact as strong a of 2022. Mexico is at a different stage of the business response as its neighbors when the pandemic first hit, and cycle than the U.S.; a slowdown in world economic growth therefore is unlikely to do so due to a global slowdown. could be enough to help the central bank achieve its inflation target. Inflation surged to 8.6% in the first half of August compared to a year ago. Much of that was caused by soaring food A recession is not in our base case but is the downside prices, as energy prices have come off their peak. Inflation scenario, especially if the U.S. enters one at the end of is not expected to come down to the Banxico’s target of 3% the year. A recession in the U.S. would wipe out almost all (+/- 1 percentage point) until 2024 or later. growth for Mexico in 2023. About 80% of Mexico’s exports go to the U.S., therefore any drop in consumer or business activity in the U.S. will impact the Mexican economy and create a lasting damage to industrial production and private investment. A more severe global slowdown would pose even more downside risks for Mexico. Yelena Maleyev Economist, KPMG US © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 16

Global Economic Outlook – September 2022 ASEAN: Global headwinds weighing on trade in the region While the relaxing of Covid Inflation rates are rising While interest rates in the region are restrictions has benefited but remain low by generally being raised, the pace of ASEAN economies, global standards. Export tightening is slower than in some continued lockdowns in revenues for commodity developed economies. The move China and high commodity producers have been into safe assets has resulted in prices have been a boosted by higher currencies across the region losing dampener on growth. commodity prices. value against the USD this year. Covid restrictions have been unwound in many ASEAN Chart 15: Purchasing Managers’ Index, Asia countries this year allowing domestic activity to normalize. This has driven a strong rise in consumption, which has 60 been particularly marked in Singapore (up 6.1% since the 55 start of the year) and Malaysia (up 11.7%) – the rebound is consistent with both jurisdictions having some of the 50 toughest lockdowns and ongoing restrictions in 2020 and 2021. 45 ve 50 = expansionary40 Solid consumption growth has been somewhat offset by difficult external conditions (a result of the lockdowns in 35 Index, abo China) and a mixed outturn for investment growth; rising 30 inflation and borrowing costs have combined with concerns about the outlook to weigh on business’ capital expenditure 25 Sep Jan May Sep Jan May Sep Jan May Sep plans. Overall, the pace of GDP growth in most ASEAN 2019 2020 2020 2020 2021 2021 2021 2022 2022 2022 countries has broadly held steady this year, with the boost Singapore Vietnam Thailand Malaysia Indonesia to household spending offset by drags elsewhere. But there have been some notable exceptions, with Malaysia Source: KPMG Economics, IHS Markit, Macrobond. recording a spectacular pace of GDP growth in the first half of the year. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 17

Global Economic Outlook – September 2022 Merchandise goods trade weighed down by lockdowns and global headwinds More generally, lockdowns in China have disrupted trade throughout the region. A number of cities in China are currently in lockdown, which is creating ongoing disruption to supply chains as well as dampening China’s imports from across the Asia region. And the sharp slowdown in activity, particularly in the construction sector, has weighed on demand for key exports for most economies across the region. China’s importance as a source of demand means that all economies will continue to be impacted; growth in Korea’s exports (a bellwether for the region) moderated to 6.6% year-on-year in August. Chart 17: Export growth, Asia 40% 30% Tourism arrivals recovering slowly but surely 20% 10% While tourism arrivals have started picking up, they remain well below pre-Covid levels. The recovery in Singapore -on-y 0 % y appears to be one of the strongest in the region, with -10% visitor arrivals reaching 50% of pre-pandemic levels in July. -20% But given the ongoing lockdowns and border restrictions in China, a full recovery is unlikely in the near term. With -30% tourism typically accounting for a significant share of GDP -40% in Thailand, Vietnam, and Indonesia, the speed of the 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 recovery in this sector will be a major driver of growth in the Singapore South Korea Thailand Malaysia Indonesia Philippines years ahead. Source: KPMG Economics, Macrobond. Chart 16: International arrivals, Asia Looking ahead, conditions are set to remain challenging. If the authorities are able to ease restrictions and policy, a 125 rebound in China’s economy will provide some welcome 100 relief. But with growth momentum slowing and major advanced economies in Europe and North America leading 0 0 the slowdown, any relief from an improved outlook for the 75 region will be short-lived. Overall, export momentum is 50 set to moderate over the next twelve months, as the full anuary 2020 = 1 impact of interest rate rises and high inflation materializes in 25 external demand for goods. Index, J 0 -25 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Singapore Vietnam Thailand Malaysia Indonesia Philippines Source: KPMG Economics, Macrobond. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 18

Global Economic Outlook – September 2022 Inflation rising to uncomfortable levels Policy tightening set to become As elsewhere, inflation is picking up across the region. But a drag on growth the rates are generally lower than in much of the rest of In the absence of widespread domestic pressures, the the world. Movements in global energy and food prices are pace of interest rate rises has generally been slower than flowing through and are being exacerbated by exchange in other countries (albeit starting from a higher base in rate depreciations. But relatively small amounts of fiscal Indonesia and the Philippines). This outcome, coupled with stimulus through the pandemic and the lingering impact of a flight to safe assets (particularly the USD), has resulted in restrictions means that domestic demand has not moved many currencies depreciating sharply this year; the Korean substantially beyond supply, resulting in limited domestic won has lost 19% and the Thai baht 13%. But in line with wage and price pressures. Overall, inflation rates are the positive shock to their terms of trade, commodity expected to peak at relatively low levels across the region. exporters have generally seen smaller movements, with the The surge in commodity prices has also been a benefit Indonesian rupiah depreciating by just 5% since January. to some Asian countries. In particular, Indonesia and Fiscal tightening will add a further headwind to growth over Malaysia have seen significant rallies in their terms of the medium term, with the elevated levels of government trade this year as the price of crude and palm oil has spending through the pandemic now being unwound. In skyrocketed. Those rallies have subsided in recent months, fact, in some countries such as Indonesia and Singapore, but strong commodity prices are clearly still benefiting attention has started to shift towards fiscal consolidation, commodity exports. with the announcement of tax increases as initial signs of economic recovery emerge. Chart 18: Headline CPI inflation, Asia 10% Ben Udy Economist & Senior Manager, KPMG in Australia 8% Dr. Sarah Hunter 6% Senior Economist & Partner, KPMG in Australia 4% 2% Headline inflation, % 0% -2% -4% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Singapore South Korea Thailand Malaysia Indonesia Philippines Source: KPMG Economics, Macrobond. While the recent dip in oil prices may take some of the sting out of price hikes for consumers, we doubt that inflation has reached its peak for most of the region. We have therefore lifted our forecasts for inflation in 2022 and 2023 throughout the region. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 19

Global Economic Outlook – September 2022 China: Covid, property market and policy support China will likely stick to its strict The property market has faced The Chinese government Covid containment policies in the considerable headwinds since has taken a series of near future. How the government H2 2021 and the pressure fiscal and monetary policy balances the objectives of continues to mount. The measures to stimulate controlling the pandemic and slowdown has had a large impact demand. We expect more maintaining economic growth is on investment, bank loans, and measures to be announced still the key issue to watch. housing-related consumption. to support growth. China’s GDP grew by 2.5% year-over-year (yoy) in H1 Table 5: KPMG forecasts for China 2022, below its 5.5% annual growth target set in March. 2021 2022 2023 The economy grew 0.4% in Q2. It was the second lowest quarterly growth, only higher than the first quarter of 2020 GDP 8.1 3.5 5.2 when the pandemic started (-6.9%). The slowdown in Q2 Inflation 0.9 2.5 2.3 was mainly due to a resurgence of the Omicron variant of Unemployment rate 5.1 5.4 5.1 Covid between March to May, which caused lockdowns in some areas and logistic disruptions. Source: Wind, KPMG forecasts. Average % change on previous calendar year except for the unemployment rate, which is the average annual rate. Inflation measure used is the CPI, and the unemployment measure is the surveyed unemployment rate. Chart 19: Contributions to China’s real GDP growth by sector 20% 15% 10% 5% 0 -5% -10% 2015 2016 2017 2018 2019 2020 2021 2022 Final consumption Gross capital formation Net exports Real GDP growth Source: China’s National Bureau of Statistics, Wind, KPMG analysis. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 20

Global Economic Outlook – September 2022 Economic activity showed a recovery in June as the The government has maintained its overall real estate policy Omicron outbreak came under control. However, summer that ‘housing is for living in, not for speculation’. Although travels led a resurgence of infections in some cities, the property market is facing considerable headwinds, and the daily new cases (including asymptomatic cases) China’s increasing urbanization and households’ growing increased to over 2,000 in mid-August from below 100 at demand for quality homes should support the market in the the end of June. Growth in industrial production slowed long run. and manufacturing purchasing manager index (PMI), a leading indicator, fell into contraction territory again in July. Infrastructure investment has become the key driver to Meanwhile, the most severe heatwave in six decades hit support economic growth. The government has speeded up many areas this summer, sending electricity usage up the issuance of local government special bonds (LGSBs), 6.3% in July – the fastest growth since last September. The a major funding source for infrastructure investment. drought also caused a shortage of hydropower production in By the end of July, the government had issued a total some places, weighing on industrial production. of RMB 3.47 trillion LGSBs, 95% of the annual quota. The pace of issuance was much faster than in previous The recovery of consumption is still slow and is subject years. Infrastructure projects such as water conservancy, to the pandemic evolvement. Growth of the retail sector transportation and urban renovation have seen fast growth. rebounded to 3.1% in June from -11.1% in April, but We expect infrastructure investment to remain strong in the it moderated again to 2.7% in July due to the recent second half of this year. resurgence. Besides the pandemic, household expectations for job security and income growth are important drivers to consumer spending. The government has taken various Chart 20: Cumulative issuance of local measures to keep the job market stable, and the urban government special bonds in recent years surveyed unemployment rate dropped to 5.4% in July from 6.1% in April. We expect the unemployment rate to 4,000 average at 5.4% in 2022. Income sentiment and consumer confidence will likely improve in H2, supporting a gradual 3,500 recovery of consumption. 3,000 2,500 Meanwhile, the real estate market faces continued pressures. Liquidity is a key challenge for developers, 2,000 especially those with high leverage ratios. Funding pressure RMB billion 1,500 has caused some developers to suspend construction of pre-sold houses, causing some homebuyers to threaten to 1,000 stop making mortgage payments. We estimate the overall 500 exposure of banks to the troubled projects is still relatively 0 small, but possible contagion risks should be monitored. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The government has taken actions to stabilize the market. 2019 2020 2021 2022 On the demand side, many local governments have relaxed restrictions on property purchases, cut mortgage rates Source: Ministry of Finance, Wind, KPMG analysis. and lowered down-payment ratios. On the supply side, some cities are setting up relief funds to help developers with liquidity issues. The central bank also plans to provide targeted credit support to distressed developers to ensure delivery. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 21

Global Economic Outlook – September 2022 Exports have remained resilient. Driven by strong external Inflation has remained low in China compared to many demand, China’s exports were up 18% in July and increased parts of the world, but it may see some upward pressure 14.6% in the first seven months of the year. July’s trade in H2. Food accounts for nearly 30% of China’s consumer surplus hit a record high, exceeding USD 100 billion for the price inflation (CPI) and the cyclicity of pork prices is an first time. The bilateral trade between China and ASEAN important factor behind inflation fluctuations. Driven by has further strengthened since the RCEP agreement took recent increase of pork prices, CPI rose by 2.7% in July, up effect at the beginning of the year. With easing supply from 2.1% in May. In September, China released state pork chain disruptions and production ramp-up, Southeast Asian reserves to ease pork prices. Excluding food and energy, countries are increasing their demand for intermediate core CPI remains muted as the consumption recovery stays goods from China. Exports of new energy products such weak. We expect overall inflationary pressure to remain in as solar cells and lithium-ion batteries also saw strong check in 2022. Meanwhile, producer price inflation (PPI) momentum. Looking ahead, we expect exports’ strong continued to moderate from a high base, slowing from growth to moderate in H2, due to both high bases and 6.1% in June to 4.2% in July. slowing global growth. With the easing of Covid infections and relaxing of social We expect China’s fiscal and monetary policy to remain distancing requirements, as well as the government’s supportive. After announcing a set of 33 supportive continued support measures, Hong Kong (SAR)’s economy measures at the end of May, the government introduced showed a sequential improvement in Q2. Real GDP another 19 measures in August to bolster growth. Utilizing growth contracted at a moderate pace of 1.3%, narrowing the remaining balance accumulated from previous years, from -3.9% in Q1. As Hong Kong has adopted a pegged it announced a new RMB 500 billion quota in LGSBs to exchange rate with the USD, the government raised its support local government spending. The new quota is interest rate to 2.75% in lockstep with the U.S. Federal expected to be fully issued by October. In addition, on top of Reserve’s rate hikes. Monetary tightening and a global the RMB 300 billion policy bank bond issuance announced economic slowdown may weigh on Hong Kong’s recovery. in June, the government added another RMB 300 billion Looking ahead, we expect Hong Kong’s economic growth to bond quota, which can be used as equity capital for key continue to recover in H2, but challenges also remain. infrastructure projects. On the monetary side, the central bank reduced the policy Kevin Kang, PhD rate (medium-term lending facility, MLF) in August again, Chief Economist, KPMG China after cutting it in January. It also used special relending facilities to provide direct credit support to small and medium enterprises (SMEs), green investment and the transportation sector. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 22

Global Economic Outlook – September 2022 Japan: Loose policy keeping the yen down, adding to inflation Headwinds to households Inflation has risen above The Bank of Japan’s continuation are mounting, exports the Bank of Japan’s target with loose policy settings has weighed down by global and has further to rise in caused the yen to depreciate to environment. the months ahead. its lowest level in decades. Japan has had a slow start to 2022 with GDP rising by Table 6: KPMG forecasts for Japan less than 0.6% in the last six months. Activity has been 2021 2022 2023 supported by the continued relaxation of Covid restrictions, which has enabled a solid rebound in consumption. But GDP 1. 7 1. 6 2.2 momentum is expected to ease over the rest of 2022, as Inflation -0.2 2.4 1. 6 household budgets are squeezed by the step up in inflation. Lockdowns in China have put a significant drag on exports, Unemployment rate 2.8 2.5 2.6 and while conditions there are now improving, there are Source: Cabinet Office of Japan, KPMG analysis. significant clouds hanging over other regions. Overall, we Note: Average % change on previous calendar year except for unemployment rate, now expect Japan’s economy to grow by 1.6% this year, which is average annual rate. followed by 2.2% in 2023. After rebounding through Q2, the latest activity data suggests that momentum in Japan’s economy is now easing. The services PMI, an indicator of growth momentum in the sector, fell into contractionary territory in August (49.2), suggesting that the inflationary headwinds facing households are flowing through to spending. But pent-up demand and excessive savings accrued during the pandemic are providing some immediate relief, with retail sales increasing by a robust 2.6% on the month in July. Outside of domestic consumers, there is still scope for a further rebound in service activity through a continuing recovery in tourism inflows. Japan’s border restrictions have remained among the tightest in the world this year, with steps to re-open lagging behind most other countries. There was a further easing of the rules in September, with travellers outside of tour groups now allowed to enter as long as they have pre-booked their trip with an agent. Even so, the new daily cap of 50,000 for inbound arrivals is still around half of pre-virus arrivals so there is some way to go before the sector has fully recovered. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 23

Global Economic Outlook – September 2022 Japan’s manufacturing sector continues to face challenges, Chart 21: Purchasing Managers’ Index, Japan with the PMI reading falling to 51.5 in August. While this is still in expansionary territory, the key output and new 55 orders sub-indices fell into contractionary territory. Global demand for Japan’s machinery and equipment capital goods 50 is likely to ease as interest rate rises dampen investment 45 momentum. And although exports to China have begun to rebound, in line with the re-opening of the economy, they 40 are likely to remain subdued given the ongoing lockdowns and outlook for the domestic economy. 35 As-in most other countries, headline inflation is set to Index, 50 = expansionary/contractionary30 remain elevated through the rest of 2022, as the impact of imported food and fuel price rises flow through. Indeed, 25 Sep Jan May Sep Jan May Sep Jan May Sep Tokyo energy prices are up 29% from a year ago, the fastest 2019 2020 2020 2020 2021 2021 2021 2022 2022 2022 pace of energy inflation since the 1980s. High energy prices have prompted the government to explore the restarting Source: KPMG Economics, IHS Markit, Macrobond. of some idle nuclear plants and the building of new plants. Food inflation is close to 5%, the highest rate in nearly a decade, and the strength in agricultural commodity prices Chart 22: CPI inflation, Japan and ongoing war in Ukraine means it is unlikely to moderate soon. The moves in global prices are also being reinforced 20% by the depreciation of the yen, which is further increasing the local price of these essentials. 15% 10% Unlike most other countries, wages growth in Japan has remained relatively subdued, at around 2% year-on-year, -on-y5% with the Spring Negotiation culminating in a subdued base % y pay increase. Given this, the risk of wage growth lifting 0% markedly in response to inflationary pressures is very low, and this in turn is limiting domestically-generated price -5% increases. Looking ahead, headline inflation is expected to moderate to 1.6% in 2023, as the impact of external price -10% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 moves in 2022 drops out of the calculation. Fuel and energy Food Headline Source: KPMG Economics, Statistics Bureau of Japan Macrobond. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 24

Global Economic Outlook – September 2022 Given the lack of domestic inflationary pressures and the Chart 23: Total cash earnings, Japan subdued economic outlook, the Bank of Japan (BoJ) is continuing to signal its commitment to ultra-loose monetary 3% policy. Markets have repeatedly challenged the Bank’s yield curve control, but the BoJ has responded by lifting the pace 2% of asset purchases to record levels, to maintain the 10-year 1% bond yield close to 0%. This supports our view that the BoJ is unlikely to tighten policy settings any time soon. -on-y0% % y The BoJ’s determination to keep policy settings loose has -1% driven the yen to the weakest level since the 1990s, with the currency currently sitting around 140 yen per USD. -2% And looking ahead, continued policy tightening in other countries may force the yen lower in the months ahead. The -3% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 weak exchange rate is contributing to the recent strength in inflation; import prices are up by nearly 50% from a Source: KPMG Economics, Statistics Bureau of Japan Macrobond. year ago. As the yen continues its descent this trend will continue and will be a driver of further increases in headline inflation in the near term. Chart 24: Currencies vs US$ 130 Ben Udy 125 Economist & Senior Manager, KPMG in Australia 120 0 115 Dr. Sarah Hunter 0 Senior Economist & Partner, KPMG in Australia 110 an 2020 = 1105 Index, J100 95 90 85 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 Euro Pound Yen Australian Dollar Source: KPMG Economics, Macrobond. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 25

Global Economic Outlook – September 2022 India: Driving growth on the back of inflation control India to remain Global geopolitical Investor-friendly policies such as the PLI among the fastest- tensions expected to schemes and their extension to newer growing economies create uncertainty in the sectors expected to help promote the globally. trajectory of inflation. manufacturing ecosystem in India. With the global economy suffering repeated shocks with Table 7: KPMG forecasts for India surges in inflation, sluggish growth across countries, and 2021 2022 2023 monetary policy tightening, the ripples are also being felt in India, discernible from the high inflation. However, the GDP 8.7 7. 2 6.3 country’s economy grew by 13.5% in Q1 of fiscal year Inflation 5.5 6.7 5.0 2022-23 backed by improvement in private consumption, largely on the back of the reopening of the services sector. Unemployment rate 8.0 7. 6 7. 1 As India celebrates 75 years of its independence, the Source: Ministry of Statistics and Programme Implementation; CMIE, KPMG analysis. country has emerged as the fifth largest economy in the Note: The years represent the April-March period; for instance, 2021 spans from April 2021 to world replacing the UK , in value terms. As India celebrates March 2022. Real GDP numbers (at constant prices) for 2022 and 2023 and inflation rates for 2022 are advanced estimates by National Statistical Office (NSO) and the RBI’s survey of professional 75 years of its independence, the country has emerged forecasters. as the fifth largest economy in the world replacing the UK, in value terms, and is expected to rank among the fastest growing globally, with the Reserve Bank of India (RBI) projecting a GDP growth of 7.2% for the fiscal year 2022-23 . Chart 25: India’s quarterly GDP growth 25% Forecast 20% 15% 10% -on-year5% 0% -5% -10% GDP growth, % year -15% -20% -25% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2019 2020 2021 2022 2023 Source: Survey of Professional Forecasters, RBI and National Statistical Office. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 26

Global Economic Outlook – September 2022 An uptick in domestic economic activity is observable, with Unemployment rates, however, surged to a 12-month high indicators of urban and rural demand such as automobile of close to 8.3% in August 2022. Rural unemployment, sales, consumer durables manufacture, and domestic which had been affected by factors such as erratic rainfall, air travel showing improvement. A positive movement in is expected to decrease towards the end of the monsoon domestic demand is discernible from the robust import season, as agricultural job opportunities increase. However, requirements for non-oil and non-gold commodities. Rising concerns around the trajectory of urban unemployment are consumer optimism, improved corporate performance, expected to persist in the immediate future. and enhanced demand for contact-intensive services are expected to drive consumption. Retail inflation, which was one of the highest in April 2022 (nearly 7.8%) due to the high prices of articles such as Investments are also rising in the country, and factors food and fuel, has witnessed a downward trend since May such as a capex push by the government, improvement 2022. The government’s reduction of excise duties on fuel in capacity utilization and widening of bank credit will in May, coupled with three interest rate hikes by RBI this contribute to ramping up investment activity. In addition, year to 5.4% have helped moderate inflation. However, the Foreign Portfolio Investors poured over INR56,000 crore central bank expects inflation to remain high in fiscal year (~US$7.1 billion) in August 2022 after nine months of 2022-23 at 6.7%, owing to effects of the global geopolitical continued outflows, indicating improved enthusiasm headwinds. Furthermore, the appreciation of the U.S. dollar of foreign investors for the Indian equity market, which is a factor contributing to inflationary pressures. became the fifth largest recently in terms of market capitalization. The government’s production-linked incentive (PLI) schemes are also promoting domestic manufacturing and job Chart 26: India’s Consumer Price Index creation, with investment commitments of INR2.34 lakh crore (~US$29.53 billion) as of April 2022. PLI schemes 9% are also being considered for additional sectors such as furniture and toys, which will help bolster domestic 8% manufacturing. 7% 6% Over the coming years, India is expected to continue on -on-year its path of economic growth and become a US$5 trillion 5% economy by 2027. However, geopolitical uncertainties and 4% tensions coupled with inflationary pressures and monetary 3% tightening in economies like the U.S. and elsewhere are CPI inflation, % year 2% cautionary factors that could affect growth estimates. 1% 0% Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Preeti Sitaram 2021 2022 Director, Government & Public Services, KPMG in India Source: Ministry of Statistics and Programme Implementation. Note: Inflation rate for July 2022 is provisional. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 27

Global Economic Outlook – September 2022 Australia: Mounting headwinds set to weigh on growth The Australian economy has Rising inflation, a tight labor As the full impact of the recent rate proven resilient to recent market and strong growth rises flows into the economy in the headwinds, achieving solid are forcing the RBA to hike months ahead, growth and inflation growth in H1 2022. rates aggressively. are expected to moderate in 2023. Households resilient despite headwinds Table 8: KPMG forecasts for Australia 2021 2022 2023 Supply chain disruptions, elevated commodity prices, and GDP 4.9 4.2 2.2 rising interest rates are all weighing on economic activity to some extent. But households have thus far shaken off these Inflation 2.9 6.3 5.2 pressures and are continuing to lead solid GDP growth. Unemployment rate 5.1 3.8 4.4 Helped by the release of pent-up demand from 2021’s Delta lockdown, consumption rose by 2.2% quarter-on-quarter Source: Australian Bureau of Statistics, KPMG analysis. in both Q1 and Q2, well above trend growth. The increase Note: Average % change on previous calendar year except for unemployment rate, which is average annual rate. in spending is being led by a rebound in services, with households continuing to normalize their spending patterns. Despite the lockdowns and real estate downturn in China, which are disrupting construction activity and demand for iron ore, strong demand for Australian energy exports has helped lift the trade balance to new highs. While some of that reflects elevated commodity prices, export volumes have increased too. Indeed, net trade (the difference between export and import volumes) made a 1 percentage point contribution to GDP growth in Q2. Notwithstanding the robust growth in disposable income, which increased by 1% on the quarter in Q2, households have partly funded additional consumption in recent quarters by reducing their saving rate. The household saving rate is now 8.7%, still a little above its pre-Covid level, but at its lowest level in two years. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 28

Global Economic Outlook – September 2022 Businesses still signalling rising investment, Inflationary pressure easing government spending set to moderate but still elevated A rebound in business investment is likely in the near term, Oil prices have eased in recent months, but overall energy as the impact of the recent floods on building construction prices remain very high. The war in Ukraine has also put activity ease and firms continue to take advantage of tax pressure on food prices globally and those pressures have incentives. The ongoing recovery in services exports, been exacerbated in Australia due to the floods disrupting together with a recovery in inward migration, will also agricultural activity. In addition, escalating construction costs encourage firms to expand capacity. But overall, we expect and rising housing rents are providing a significant boost to momentum to moderate as the environment deteriorates. headline inflation. Taken together the headline inflation rate And after two years of outsized increases in government reached 6.1% in Q2, and trimmed mean inflation rose to spending, we expect expenditure to fall back slightly, as 4.9%, the highest rate for each series since 1991. emergency pandemic expenditure finally comes to an end. Businesses are reporting that purchase cost are continuing Overall, GDP growth momentum is expected to ease to surge, consistent with inflation increasing further in the going through H2 2022, to a trough in mid-2023. But we near term. The ending of the Government’s fuel excise still expect the economy to escape a recession, given its reduction is set to boost inflation to a peak of more than positive fundamentals. 7% in Q4. Thereafter, the modest easing in energy prices, the unwinding of flood impacts on food price, and softening demand momentum should see inflation moderate. Chart 27: Quarterly GDP growth by component, Australia Chart 28: Australia’s CPI inflation 7.5% 7% 5.0% 6% 5% 2.5% 4% 0% 3% ercent hange, y/y P -2.5% % c 2% -5.0% 1% -7.5% 0% -10.0% -1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2018 2019 2020 2021 2022 Household consumption Government spending Change in inventories GDP Headline Trimmed mean Private investment Net exports Statistical discrepancy Source: KPMG Economics, Australian Bureau of Statistics, Macrobond. Source: KPMG Economics, Australian Bureau of Statistics, Macrobond. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 29

Global Economic Outlook – September 2022 Labor market tightness stoking wage growth RBA raising rates rapidly to cool The tightening in the labor market has continued in recent domestic inflation pressures months. The participation rate remains close to its recent The rapid rise in inflation and tight labor market has forced record high. But employment growth has been robust and the RBA to accelerate its hiking cycle. The cash rate is now there are now more job vacancies than unemployed people at 2.35% and Governor Lowe has indicated that further rate in Australia. Looking ahead, a slowdown in growth and hikes will be needed in the months ahead. But we expect a rebound in net migration should start to take some of the pace of tightening to slow from here. By the end of the tightness out of the labor market. But given the huge this year we expect the cash rate to have reached 3.1%, backlog of job vacancies, the labor market is likely to remain with a further 0.25%pt hike possible in early 2023. Further very tight for some time to come. significant hikes beyond this increase the risk that the Bank The tight labor market is finally spurring wage growth. To overshoots and tightens rates too aggressively. If that turns be sure, the pace of wage inflation remains low compared out to be the case, the RBA would probably need to reverse to many advanced economies. Annual growth in the wage course and cut rates in late 2023 or early 2024. price index reached 2.6% in Q2, a little above its 2019 peak of 2.4%. But the historically large 5.2% increase in the minimum wage in Q3, further tightening in the labor market Ben Udy and continued rise in inflation mean that wage growth will Economist & Senior Manager, KPMG in Australia likely accelerate in the months ahead. Dr. Sarah Hunter Senior Economist & Partner, KPMG in Australia Chart 29: Job vacancies and the unemployment rate, Australia AU3 unemployment 7.5% 275,000 7.0% 250,000 6.5% 225,000 6.0% 200,000 5.5% 175,000 5.0% 150,000 Unemployment rate, %4.5% 125,000 Number of vacancies 4.0% 100,000 3.5% 75,000 3.0% 50,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Unemployment rate (LHS) Job vacancies (RHS) Source: KPMG Economics, ANZ, Australian Bureau of Statistics, Macrobond. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 30

Global Economic Outlook – September 2022 Germany: Europe’s biggest economy threatened by recession Positive first half-year High energy prices and New government overshadowed by gas shortage endangering package to fight negative expectations. economic growth. high inflation. The Russian invasion of Ukraine and its consequences Table 9: KPMG forecasts for Germany continue to significantly affect the economic outlook for 2021 2022 2023 Germany. Real GDP grew by 0.1% in the second quarter of 2022, in comparison to Q1. Compared to Q2 of the GDP 2.6 1. 5 -0.5 previous year, the German economy grew by 1.7%. Real Inflation 3.2 8.0 6.8 GDP has now reached pre-Covid levels. As governmental measures in response to the pandemic were lifted with Unemployment rate 3.6 2.9 3.0 the end of Q1, private consumption, for leisure and Source: Eurostat, KPMG forecasts. travelling, increased by 0.8% compared to the first three Note: Average % change on previous calendar year except for unemployment rate, which is average months of the year. Government consumption on the annual rate. Inflation measure used is the HICP. other hand increased by 2.3% in the second quarter with a focus on social services. In addition to that – and despite trade disruptions due to sanctions against Russian firms – German exports increased by 0.3% in the second quarter of the year. The sentiment in the German business world, however, has cooled significantly. The ifo Business Climate Index fell to 88.5 points in August, reaching its lowest level since June 2020. Companies are expecting business prospects to become much more difficult in the coming months. They were also less satisfied with their current situation. Higher energy prices and the threat of a gas shortage are weighing on the economy. In August, energy prices were 35.6% higher than in August 2021. In the same context, the electricity price for industry exceeded that for households for the first time. Until the beginning of the invasion in Ukraine, Germany obtained a significant share of its gas imports from Russia (55% in 2021). As a result of the country’s efforts to become less dependent on Russian gas, imports fell sharply in 2022. High demand for electricity, massive price jumps on the procurement markets, expensive production and uncertainty regarding gas imports will likely cause the price of energy to rise further in the coming months. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 31

Global Economic Outlook – September 2022 Accordingly, Germany experienced an inflation rate of 8.2% Supply chain disruptions, amplified by China’s zero-Covid in Q2, while wages increased by only 2.9% compared strategy, are the main challenge for several industries, to Q1. HICP inflation rate reached 8.8% in August 2022. including key sectors such as the mechanical engineering The high inflation will slow the recently recovered private as well as the automotive industry. These disruptions are consumption, resulting in lower growth expectations. expected to continue well into 2023. Because of material The German economy is crucially dependent on trade and bottlenecks, more than one in two companies have exports. Exporting companies are suffering significantly already changed their procurement strategy for critical from the overall global recession and decreasing demand raw materials. from their most important trade partners. Developments in the main exports markets (China, the U.S., Western Europe) German fiscal policy in 2022 is influenced by benefits are not favorable for the German export industries. spending, such as transfers and tax reductions. Surprisingly, the government deficit was reduced to EUR13 billion in Q2, corresponding to 0.7% of GDP. This stems from a large Chart 30: Headline and core HICP inflation in Germany increase of nearly 8% in tax income while expenditures, for example to support the labor market, increased by only 10% 0.2%. These numbers, however, must be taken with a grain of salt, since corporate tax intake was inflated by higher 8% nominal revenues and VAT-intake by an increase in prices. In 6% comparison to the much higher deficit rate of 4.3% in the first half of 2021 though, the federal government has now 4% some financial liberties to undertake measures aimed at increasing private consumption and counteracting the loss Annual inflation, %2% of purchasing power. 0% To ease the burden on households, the German government has signed off on a new EUR65 billion relief package. This -2% third package is designed – in part – to support households 2010 2012 2014 2016 2018 2020 2022 struggling with the soaring cost of energy and other Headline Core basic necessities. Measures include one-off payments Source: Eurostat. to pensioners and students, higher child benefits and an Note: Core inflation excludes energy, food, alcohol and tobacco. electricity price cap for basic consumption. In general, there is a need to adjust the economic forecasts Chart 31: ifo Business Climate Index for Germany for 2022 as well as for 2023 due to recent developments. After growing by 2.6% in 2021, we are expecting an 105 increase of German real GDP by 1.5% for the year 2022 with a projected inflation rate of 8.0%. For 2023, we expect 100 to see GDP growth of -0.5% and a lower inflation rate 95 of 6.8%. 0 0 5 = 190 The future pandemic situation, however, could still be an 1 85 important factor impacting economic growth for the next Index, 20 months in Germany. The German government has recently 80 presented new measures aiming to reduce higher Covid- infections during the upcoming winter, leaving an option 75 for each State (Bundesländer) to pass their own – possibly 70 stricter – measures. Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2020 2021 2022 Business climate Business situation Business expectations Dr. Ventzislav Kartchev Source: ifo Institute. Head of Business Intelligence/Markets, KPMG Germany © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 32

Global Economic Outlook – September 2022 Austria: Strong energy headwinds – and fiscal support Austrian recovery from Strong exposure to Russian Elevated inflation with low, but Covid supported by ongoing gas imports has led to an positive, growth in 2023 as key strong fiscal support and increase in energy prices forecast. Risks from a full stop private and corporate with risks to industry and in gas supply would trigger a transfers. consumption dynamics. recessionary environment. Austria’s fiscal response to Covid was strong: 15.2% of Table 10: KPMG forecasts for Austria GDP was spent as support measures in Austria, comparable 2021 2022 2023 to Germany (15.3%). This softened the downturn, especially cushioning losses in the services and tourism sector. GDP 4.8 3.9 0.3 Employment remained strong, with unemployment rate Inflation 2.8 8.5 5.8 expected to fall to 4.6% in 2022. Austria’s 2021 upswing was robust (4.8%), led by strong industrial dynamics, Unemployment rate 6.2 4.6 4.6 despite the strong concentration of winter tourism and Source: Eurostat, KPMG forecasts. hospitality sectors in Austrian GDP. Note: Average % change on previous calendar year except for unemployment rate, which is average annual rate. Inflation measure used is the HICP. Strong winter tourism dynamics contributed positively to 2022 GDP, with a particular boost to Q1. Nevertheless, tourism is still only at 64%, compared to 2019 levels. That said, Austria is currently exposed to simultaneous supply side shocks, exacerbated – if not entirely caused – by the war in Ukraine. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 33

Global Economic Outlook – September 2022 Gas and energy prices lead the current economic and Supply chain disruptions, causing limitations to production political discussion, with reduced but still significant and cost increases, are still persistent in many sectors. Austrian exposure to Russian gas exports (86%, compared More than 40% of Austrian companies considered supply to 49% for Germany, in 2021). The main risk, correlating shortages as main economic risk in summer 2022. strongly with gas prices, is electricity prices, which have risen dramatically (by over 400% compared to 2020 levels). Further risk stems from skill shortages across a range of This poses price risks for corporates and households, economic sectors, tightened by Covid, but mainly driven by contributing significantly to inflation. Government measures structural issues that have already been in place before the to compensate for increasing energy prices are on the pandemic and the Ukraine war. More than 30% of Austrian way, and will limit the fall in purchasing power, but at the service sector firms report non-availability of labor force as cost of worsening the fiscal deficit, which has already been their main risk. increased by strong Covid compensation (with government debt at 82.8% of GDP in 2021). Driven by the supply side shock, Austrian inflation rate is expected to average 8.3% in 2022, while strong wage increases in autumn negotiations can be expected, reducing Chart 32: Austrian Electricity Price Index real income losses. Combined with strong fiscal response to both Covid and energy prices, prospects for households 600 might turn out better than for other European peers, supporting consumption and therefore stabilizing GDP 500 growth rates. 400 This comes at a cost of further deteriorating fiscal balance. 300 Looking beyond the current crisis, consolidating measures Index and strategies for tackling structural issues are key for 200 supporting future growth. 100 Based on these assumptions, we forecast the Austrian economy to grow by 3.9% in 2022, followed by a 0.3% 0 growth in 2023, therefore not expecting an outright fall 2006 2008 2010 2012 2014 2016 2018 2020 2022 in 2023. Nevertheless, quarters with negative growth, Source: Austrian Energy Agency. especially in winter 2022/23, are not unlikely. Inflation will remain significantly above the ECB target, projected at 5.8% in 2023. Chart 33: Factors limiting production (industry), Austria Major downside risk to the forecast is a full stop in gas 40% delivery in autumn/winter, ending in a strong recession in 35% 2023 and higher inflation rates than in the main scenario. 30% Over the medium term, annual growth is projected to 25% recover to around 1.8%. t on main economic risks20% 15% Dr. Stefan Fink 10% Chief Economist, KPMG in Austria 5% Austrian companies repor 0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Shortage of material and/or equipment Labor Source: European Commission, KPMG analysis. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 34

Global Economic Outlook – September 2022 France: A costly shield from inflation Robust growth in 2022 H1 Inflation to peak at a lower Unemployment is set to conceals vulnerabilities level compared to its increase from current levels facing households and Eurozone peers thanks to the owing to a deterioration in businesses. EUR72 billion tariff shield. the economic outlook. After falling by 0.2% in 2022 Q1, the French economy Table 11: KPMG forecasts for France registered solid growth of 0.5% in the second quarter of 2021 2022 2023 2022. The composition of growth was broad-based, with household consumption, investment and net trade all GDP 6.8 2.5 0.6 contributing positively. The rebound was partly driven by a Inflation 2.1 5.9 3.9 seasonal boost from tourism following the easing of Covid restrictions in March. GDP is now 0.9% above its pre-Covid Unemployment rate 7. 9 7. 5 7. 7 level, although the majority of the increase (0.8 percentage Source: Eurostat, KPMG forecasts. points) can be accounted for by stronger government Note: Average % change on previous calendar year except for unemployment rate, consumption. which is average annual rate. Inflation measure used is the HICP. Business and consumer surveys paint a gloomier picture for the near-term outlook. Consumer confidence is hovering close to its lowest levels since records began, while PMI Chart 34: Outlook for the French economy surveys suggest subdued business confidence across all of the three main sector groups. While the shortage of labor 8 Forecast and materials has reached its highest level for at least 30 6 years – limiting capacity – concerns around the outlook for demand are likely to weigh on production going forward. 4 2 We have revised down our forecast for GDP growth for this 0 year and next. Despite robust performance so far this year, uncertainty around a weakening domestic demand, coupled -2 with a deteriorating external environment, will likely see a -4 significant slowdown in the latter part of this year and into 2023. We now expect GDP growth of 2.5% in 2022 and -6 0.6% in 2023. Contributions to annual GDP growth, percentage points-8 2015 2016 2017 2018 2019 2020 2021 2022 2023 Consumption Government Investment Net trade Other (inc. stocks) GDP Source: Eurostat, KPMG analysis. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 35

Global Economic Outlook – September 2022 Annual HICP inflation eased to 6.6% in August, down from The French government has so far allocated a package 6.8% in July but well above the 2.4% level recorded a of measures (“tariff shield”) worth EUR72 billion (2.9% 1 year earlier. Although energy inflation slowed significantly of GDP) to protect consumers from rising energy costs . in August, core inflation picked up to 4.1%. Nevertheless, These include a freeze of gas tariffs (worth EUR7.8 billion) France registered the lowest headline inflation in the and a cap on electricity price increases of 4% this year EU. The main reasons for lower inflation in France have (worth EUR10.5 billion). These measures have been largely been due to a combination of its energy mix and the effective in keeping consumer prices in check: the National government’s measures to cap energy prices paid by Institute of Statistics and Economic Studies (INSEE) found households. Imports from Russia account for around 8.5% that the policy had prevented inflation from rising by 3.1 of gross available energy in France, which instead relies on percentage points in the year to 2022 Q2. However, a its large nuclear fleet to generate power. recent announcement that the tariff shield would remain in place in 2023, costing EUR16 billion, would result in significant further pressure on the public finances. Chart 35: Outlook for French inflation and unemployment The French labor market remains tight. The unemployment 9% 11.0% rate fell to a low of 7.3% at the start of 2022, although the Forecast downward trend has reversed in recent months. Relative 8% 10.5% to pre-Covid levels, the participation rate has increased, 7% 10.0% in particular among females aged 20-24. This is potentially 6% 9.5% thanks to more widespread hybrid arrangements that allow 5% 9.0% greater flexibility. We expect the unemployment rate to 4% 8.5% gently increase as demand weakens, averaging 7.5% this 3% 8.0% year and 7.7% in 2023. Annual HICP inflation Unemployment rate 2% 7.5% 1% 7.0% 0% 6.5% Michal Stelmach -1% 6.0% Senior Economist, KPMG in the UK 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 HICP inflation (LHS) Unemployment rate (RHS) Source: Eurostat, KPMG analysis. 1 Bruegel, National policies to shield consumers from rising energy prices, accessed 22 September 2022. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 36

Global Economic Outlook – September 2022 Italy: Misty outlook amid mounting headwinds A strong start to the year High inflation, driven by Stretched public finances, additional driven by a recovery in tourism rising energy and food uncertainty regarding gas supplies, turns to fears of a downturn as prices, is squeezing and political volatility pose significant economic conditions deteriorate. household budgets. downside risks to the outlook. The resumption of travel following the relaxation of Table 12: KPMG forecasts for Italy pandemic restrictions has helped support growth in the 2021 2022 2023 Italian economy during the first half of 2022. The overall number of visitors in May this year climbed to 89% of GDP 6.6 3.3 0.3 the levels seen in the same month of 2019, prior to the Inflation 1. 9 8.1 4.9 pandemic (see Chart 36). Meanwhile, GDP growth in the Unemployment rate 9.5 8.2 8.5 second quarter rose to 1.1%, following on from a weaker 0.1% in the first quarter of 2022. Source: Istituto Nazionale di Statistica, Eurostat, KPMG analysis. Note: Average % change on previous calendar year except for unemployment rate, However, surveys point to a deteriorating economic which is average annual rate. Inflation measure used is HICP. environment, signalling a slowdown in growth and a potential downturn on the horizon. In August, purchasing managers’ indices across all three groupings of services, manufacturing and construction were showing readings of less than 50, pointing to a contraction. In addition, overall consumer confidence showed signs of weakness, with the ISTAT consumer confidence index falling to a post-pandemic low of 94.8 in July, before rising only modestly to 98.3 in August. Chart 36: Recovery in Italy’s tourism has helped drive a stronger growth early in 2022 9 120% 1 100% 89% 80% 60% 40% 20% Monthly visitor number as share of same month in 20 0% Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr 2020 2021 2022 Source: Istituto Nazionale di Statistica, KPMG analysis. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 37

Global Economic Outlook – September 2022 Inflation reached 9.1% in August, driven by a combination Latest unemployment figures were at their lowest outside of rising energy and food prices, compared to 3.9% for of the pandemic, at 7.9% in July of this year, which points core inflation, which excludes these components (see to a degree of tightness in the labor market. However, an Chart 37). The ongoing turmoil in energy markets caused expected slowdown in growth could see the unemployment by uncertainties regarding Russian gas supplies is adding rate rise to 8.7% by the end of 2023. to pressure on household budgets and raising costs for businesses. Higher costs for businesses may in turn lead The risk of a full interruption of Russian gas supplies could to further price rises which would continue to put upward be particularly damaging to the Italian economy, which in pressure on inflation throughout the rest of this year. 2020 relied on supplies from Russia for around 43% of total 1 However, a recent fall in global food prices, which surged gas imports . A full gas shut-off could necessitate measures in the aftermath of Russia’s invasion of Ukraine, could see such as gas rationing and price controls, and lead to as a modest relief to inflationary pressures later this year and much as a 3.9 percentage point reduction in the level of 2 during 2023. Overall inflation is expected to already be GDP over 12 months . close to its peak, and to gradually fall back to 2% during the course of 2023. Tighter monetary policy by the ECB is especially challenging for the sustainability of Italy’s public sector finances. With overall government debt at over 150% of GDP in 2021, the Chart 37: Italy’s inflation remains driven second highest in the Eurozone, the cost of servicing the by energy and food components debt increases significantly as interest rates rise. Yields on Italian government bonds have risen from 1.3% to 12% Forecast 3.3% during this year alone and are now more than three 10% percentage points above the German yields, reflecting markets’ perceptions of a higher risk. Moreover, the victory 8% of the centre right coalition led by Brothers of Italy could hange6% create additional uncertainties regarding the country’s relationship with the EU. A potentially slower pace of 4% reforms could lead to tensions over the disbursement of Annual % c the nearly EUR200 billion of EU funds allocated through the 2% Covid recovery fund to Italy, which could generate additional 0% headwinds for the Italian economy. -2% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Despite the difficult domestic outlook, the Italian manufacturing sector remains an area of strength through HICP inflation Core inflation its reliance on export markets. By the second quarter of this Source: Istituto Nazionale di Statistica, KPMG analysis. year, the real value of goods exports from Italy exceeded Note: Core inflation represents HICP excluding energy, food, alcohol and tobacco. pre-pandemic levels by 9.7% and could help support overall GDP growth in our forecast as long as energy supplies are not curtailed. Dennis Tatarkov Senior Economist, KPMG in the UK 1 Eurostat, https://ec.europa.eu/eurostat/cache/infographs/energy/bloc-2c.html 2 IMF; Gabriel Di Bella, Mark J Flanagan, Karim Foda, Svitlana Maslova, Alex Pienkowski, Martin Stuermer, Frederik G Toscani; Natural Gas in Europe: The Potential Impact of Disruptions to Supply; Working Paper No. 2022/145; July 2022 © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 38

Global Economic Outlook – September 2022 The Netherlands: Inflationary squeeze weighs on economic growth The Dutch economy to stagnate during Private consumption Economic slowdown the second half of 2022, as carry-over expected to soften amid to be partially offset by from 2021 loses momentum. inflationary pressures. expansionary fiscal policies. The strong recovery of the Dutch economy after the Table 13: KPMG forecasts for the Netherlands pandemic continued in the first half of 2022, with an 2021 2022 2023 average annual growth of 5.9%. Higher household consumption of accommodation and food services as well GDP 4.9 3.0 1. 0 as more investments in buildings and transport supported Inflation 2.8 10.1 3.9 this. However, economic growth is expected to hit a speed bump in the second half of the year as the surge in inflation Unemployment rate 4.2 3.6 3.8 squeezes households’ disposable income and businesses Source: Statistics Netherlands, Eurostat, KPMG forecasts. face headwinds from high input prices, higher interest Note: Average % change on previous calendar year except for unemployment rate, rates, tax arrears and heightened economic and geopolitical which is average annual rate. Inflation rate measure is HICP. uncertainty. Despite the labor market remaining tight with a low unemployment rate, consumer confidence recorded an all-time low in August for the fourth time this year. While producer confidence remained broadly unchanged, Chart 38: Economic growth by demand manufacturers’ sentiment about future production and components, the Netherlands order book already showed signs of deterioration in August, 15.0% according to the CBS (Statistics Netherlands). As a result, we have lowered our GDP growth forecasts 10.0% to 3% in 2022 and 1% in 2023. Even though the economy is expected to experience stagnation in the second half of 5.0% 2022, annual growth remains robust in 2022 due to carry- over effects from the strong recovery from Covid in 2021. 0% Risks to the outlook remain skewed to the downside. Persistent high energy and food prices and a worsening of -5% the outlook of Netherland’s main trading partners (Germany, Contributions to annual GDP growth, % Belgium, UK and France) would lead to lower consumption -10.0% and investment levels. Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2019 2020 2020 2022 Consumption Government Investment Net trade Other (inc. stocks) GDP growth Source: Statistics Netherlands, KPMG analysis. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 39

Global Economic Outlook – September 2022 HICP inflation recorded double-digit annual figures in July The spring update on the fiscal budget signaled a more (11.6%) and August (13.7%). Although this high headline expansionary stance, with policy measures such as a inflation is mainly driven by sky-high energy prices, core structural increase in defense spending (EUR2.2bn) to inflation (HICP excluding energy and food) has also risen achieve 2% of GDP by 2024 in line with the NATO target, sharply due to higher input prices and wages. CBS reported and linking the state pensions to changes in minimum that annual inflation on food, drink, and tobacco grew by wages (EUR2.4bn). The government has announced taxes over 10% in August. This led us to revise upwards our on energy bills will be significantly reduced in 2023, an inflation forecasts to 10.1% in 2022 and 3.9% in 2023. energy allowance will be paid to the most vulnerable The Dutch government activated an energy crisis plan in households, and an increase of 10% in minimum wage June to reduce reliance on Russian gas (around 15% of in 2023. The fiscal deficit is not expected to increase Dutch gas imports), which included buying LNG, cutting significantly in 2022 due to the scaling back of Covid-19 back gas consumption and removing the caps on coal testing and vaccination programs, and will increase slightly plants during 2022-2024. At the time of writing, the to 3% of GDP in 2023. However, there are medium and Netherlands has hit the 80% EU target on gas storage, long-term risks associated to an increasing national debt-to- ahead of the target date of November 1 set by the EU. GDP ratio to be passed on to future generations. The government has announced that gas storage facilities will continue to be filled in order to create an additional buffer, absorbing potential setbacks. This strategy has Diego Vilchez Neira gained greater importance after the shutdown of the Nord Senior Manager, KPMG in the Netherlands Stream 1 pipeline. Chart 39: Dutch consumer confidence plummets as inflation accelerates 20 16% 10 14% 0 12% -10 10% -20 8% -30 6% Annual growth, % -40 4% verage of the component questions A -50 2% -60 0% Aug Feb Aug Feb Aug Feb Aug 2019 2020 2020 2021 2021 2022 2022 Consumer confidence (LHS) Producer confidence (LHS) Inflation (RHS) Source: Statistics Netherlands, KPMG analysis. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 40

Global Economic Outlook – September 2022 Ireland: Recent momentum, stumbles against headwinds Ireland enjoying very strong Cost of living pressures eroding Bottlenecks and gaps in supply economic growth, but some disposable incomes. Government of infrastructure, housing, and uncertainty remains as to well-positioned to help cushion utilities are hampering growth strength and robustness. impacts of price increases. and competitiveness. Ireland’s economy has been performing strongly for a Table 14: KPMG forecasts for Ireland number of years, and was one of a small number of 2021 2022 2023 countries to experience growth during the pandemic. As with most countries in Europe, Ireland is facing global GDP 13.4 7. 0 4.5 downturn risks and a major cost of living challenge. Inflation 2.5 7. 5 4.0 Domestically, infrastructure bottlenecks are a further barrier to growth. These three core themes drive Ireland’s Unemployment rate 6.2 4.5 4.5 economic prospects for the remainder of 2022 and Source: CBI, CSO, DOF, EC, ESRI, KPMG analysis. into 2023. Note: Average % change on previous calendar year except for unemployment rate, which is average annual rate. Inflation measure used is the HICP. Global-domestic interdependencies have been key drivers of Ireland’s economic fortune over the past two decades. On the upside, the country’s skilled and open labor market, Secondly, two economies are present – the multinational- talent pipeline, and easy access to both the European driven economy and the domestic economy – and growth of and UK market, are all likely to contribute to growth over the former consistently outpaces growth of the latter. At the the coming years. Ireland’s strong industrial base in key same time, multi-nationals (MNCs) have been increasingly sectors – in particular in Life Sciences and ICT – both investing in regions outside Dublin, helping to improve the owes and lends itself to multi-decade long investment by balance of economic growth across the country. multi-nationals. Foreign direct investment (FDI) appetite remains strong post-pandemic and post-Brexit, and further investment can be expected in the medium-term, positioning Ireland well to take advantage of wider long- term trends in global economic growth. On the downside, there are a number of clear and present headwinds. Firstly, Ireland’s close trading relationship with the EU, the UK, and the U.S. – each at risk of recession – creates risks of a downturn if lower demand in these three economies creates negative spill-over effects. To mitigate risks of contagion from key trading partners, Ireland’s export-focused economy has become increasingly diversified, but it is unlikely to be sufficient to fully insulate the country from such shocks. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 41

Global Economic Outlook – September 2022 On the whole, risks to Ireland from the macro environment On a wider level, there is a broad agreement that Ireland’s are clearly trending on the downside. However, any economy is being held back by a range of infrastructure downturn is likely to be less severe than the previous global bottlenecks. An under-supply of housing, coupled with high downturn in 2008-09, as resilience in Ireland’s economy levels of inward migration is causing strain domestically, has increased. driving high rental and home ownership costs that are eating into workers’ disposable incomes. Higher levels of Consistent with other European countries, cost of living investment in healthcare and education are needed to meet and inflationary pressures are eroding disposable income demographic and migration-linked pressures. There is also in Ireland, while increases to already-high prices will reduce a need for a ramp-up in spending on low-carbon transport competitiveness. Indeed, inflation has begun to permeate schemes and climate adaptation projects. all sectors of the economy, beyond its initial immediate impact on energy and primary materials. Prices in Ireland The Government’s current fiscal position means that it has are estimated to have risen by 9.0% in the year to August, the requisite finances to make a dent in many of these and the rising cost of fuel is continuing to drive up inflation. bottlenecks through multi-year capital programmes. Should In the year to August, electricity was up 38%, gas up 56%, negative economic headwinds materialise, there are risks home heating oil up 72%, petrol up 24%, and diesel up to the Government’s ability to fund such projects. Recent 35% respectively. Irish government research has found that income tax and corporation tax are highly concentrated around a narrow Sentiment indices are increasingly highlighting the base of employees and a handful of big companies, creating cautiousness amongst consumers and businesses a “potential vulnerability” at the heart of the Irish tax about winter 2022/23 and beyond. Leading indicators system. A global shock that affects the multinational and/or and anecdotal evidence suggest a slowdown is already the higher end of the wage spectrum will negatively impact underway in consumers’ spending and investment. By Q4, Ireland’s tax yield. as heating usage increases along with energy unit pricing, consumers will also begin to feel the squeeze from rising On the whole, Ireland’s economy is in a reasonably strong interest rates. position in the face of multiple headwinds and downside risks. While cost of living increases are likely to outpace These household-level headwinds mirror concerns wage growth, Ireland has a good fiscal cushion with which amongst policymakers on a national level around costs to support low income and disadvantaged groups. At the and affordability. Government debt, repayment costs, and same time, the breadth of uncertainty as to European and structural reforms have been keywords of successive global growth is significant, and actual outturns will not be budgetary packages over the last decade. On the upside, felt fully until early 2023. the public finances are currently in rude health: the tax take has never been higher and was 25% above expectations at end-August. As a result, the Government is running a Dr. Daragh Mc Greal surplus and had the capacity to both increase spending and Director, Strategic Economics, KPMG Ireland to reduce taxes in its end-September budget. Many of the measures that have been introduced are one-off measures for 2022, aided by the bonanza exchequer returns. Social transfers through winter will be the cornerstone of the Government’s response. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 42

Global Economic Outlook – September 2022 Switzerland: Resilient, but not immune to shocks The Swiss economy Accommodative fiscal and Strength of Swiss Franc exhibits robust growth, monetary policies should further increased by a first-mover recovering from a lower support growth, although some rate hike of SNB in June – Covid-induced output gap offset from the war in Ukraine no substantial risk to growth than its European peers. should be expected. despite softening exports. The Swiss economy is currently performing well, especially Table 15: KPMG forecasts for Switzerland compared to its European peers. Cumulative GDP growth 2021 2022 2023 over 2020-2021 was 1.6% (Germany: -1.6%). This was due to agile, supportive policies and the general global upswing. GDP 4.2 2.5 1. 2 Employment has already surpassed pre-crisis levels, with Inflation 0.5 2.9 1. 8 key factors including ongoing strong pandemic support and accommodative monetary policies. Especially strong Unemployment rate 5.1 4.3 4.2 export dynamics (watches, instruments, pharmaceuticals), Source: Eurostat, SECO, KPMG forecasts. combined with low levels of non-performing loans, have Note: Average % change on previous calendar year except for unemployment rate, also supported growth. which is average annual rate. Inflation measure used is the HICP. The economy continued to grow by a robust 0.3% in both Q1 and Q2 2022. The value added to the service sector increased significantly as the Covid restrictions were lifted at the beginning of April. Within the service industry, accommodation and food services was the fastest-growing sub-sector with growth of 12.4% from the previous quarter. In contrast to the positive growth impulses, exports of goods fell sharply by 11.5% in Q2, due to a significant contraction in transit trade. A further slowdown in economic growth is expected, with overall 2022 growth rate still robust, but dampened by spillovers from the war in Ukraine. Although direct exposure to the war (exports to impacted markets, financial sector, investment) appears limited, indirect effects (higher energy and commodity prices, supply disruptions, and lower regional and global growth) could be substantial. Fiscal and monetary policies remain supportive (despite a surprising Swiss National Bank (SNB) rate hike in June), and higher household savings during Covid should support private consumption as a stabilizer of growth. We expect GDP growth of 2.5% in 2022. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 43

Global Economic Outlook – September 2022 The war in Ukraine is also likely to continue to affect activity Chart 40: CHF exchange rates in 2023 with growth softening further, projected at 1.2%. Unemployment is expected to average 4.3% in 2022 1.15 (following 5.1% in 2021), and to remain stable in 2023 1.1 (4.2%), despite a reduction in Covid support. Inflation is expected to average 2.9% in 2022, before easing to 1.8% in 1.05 2023, which means substantially lower inflationary pressure compared to Switzerland’s peers. 1.0 FX rate0.95 With respect to monetary policy, the SNB surprised markets with a strong increase of its policy rate to -0.25% from 0.9 -0.75%, leading to an even stronger CHF. In addition, as a 0.85 consequence of increased skepticism over the success of ECB’s fight against inflation, the Swiss Franc has become 0.8 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct even more attractive as a “safe” Euro substitute. This is 2020 2021 2022 creating a long-term effect, especially in an environment EUR/CHF USD/CHF of high energy prices and therefore inflationary pressures. Consensus forecasts for EUR-CHF and USD-CHF are Source: Bloomberg. consequently both significantly below parity. A deepening of the Ukraine conflict and more severe impact on Europe could further support CHF demand. Chart 41: Debt-to-GDP ratio Overall, risks remain skewed to the downside, and the 120% forecast is subject to high uncertainty – with main risks related to a worsening of the war in Ukraine, in terms 100% of scope and duration. This could lead to sharply higher commodity prices, supply disruptions, and even-lower 80% regional and global growth, with risks to financial markets and adverse effects to exports from further deteriorating 60% % of GDP exchange rates. 40% 20% Dr. Stefan Fink Chief Economist, KPMG in Austria 0% 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Eurozone Switzerland Source: Bloomberg. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 44

Global Economic Outlook – September 2022 UK: Economy marred by stagflation Inflation set to peak at The economy is probably A package of government 10.5% as government already in a mild recession, support measures to households policies limit the impact with growth expected to and businesses, and a reversal of energy price rises on stay negative for the rest of major tax increases, are set to households’ utility bills. of this year. provide a large fiscal boost. The UK outlook continues to be dominated by high levels Table 16: KPMG forecasts for the UK of inflation, which first reached double digits in July 2022 2021 2022 2023 at 10.1%, before easing to 9.9% in August. Supply chain disruptions, arising during the global recovery from the GDP 7. 4 3.2 -0.2 effects of the pandemic, caused the initial pick-up in inflation Inflation 2.6 8.9 5.6 in 2021. More recently, the main driver of higher inflation has come from higher energy prices, particularly for natural Unemployment rate 4.5 3.7 4.3 gas, and elevated food prices, both linked to Russia’s Source: ONS, KPMG forecasts. invasion of Ukraine. Note: Average % change on previous calendar year except for unemployment rate, which is average annual rate. Inflation measure used is the CPI and the unemployment measure is LFS. European and UK gas markets have been extremely volatile throughout the past 12 months as the threat of and the eventual interruption of supplies from Russia has put upward pressure on prices. By August this year, Chart 42: Outlook for UK inflation UK domestic energy bills have already risen by 73.2% 18% compared to a year ago. The UK Government’s decision Forecast to cap domestic energy bills at £2,500 from October 16% 2022 has limited further increases to 27%, avoiding the 14% expected series of sharp rises that could have seen bills 12% rise by another 235% by April 2023. We estimate that 10% these measures will have reduced headline rate of inflation by around 5 percentage points next year (see Chart 42). 8% This will help keep the peak of UK inflation at 10.5% in Annual CPI inflation6% October this year before it is expected to fall throughout the 4% following two years. 2% 0% In contrast to natural gas, the prices of other commodities, 2016 2017 2018 2019 2020 2021 2022 2023 2024 such as oil, metals and food fell back from peaks reached in the aftermath of Russia’s invasion in February. In August CPI inflation Forecast exc. energy price freeze Inflation target alone, the fall in global oil prices helped ease UK inflation Source: ONS, KPMG analysis. to 9.9%, as the prices of automotive fuels fell by 6.8% between July and August. This, in addition to a fall in global food prices which took place between May and July this year, and which is yet to feed into UK consumer prices, should help in bringing inflation down towards the Bank of England’s 2% target over the next 6 to 12 months. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 45

Global Economic Outlook – September 2022 The Bank of England has responded to the high levels At the time of writing, sterling is down by 6.4% against the of inflation by accelerating the pace of monetary policy U.S. dollar since the start of September, while 5-year gilt tightening, and we expect Bank Rate to reach around 3.5% yields are around 190 basis points higher. Financial markets early in 2023. Monetary policy is expected to be more now expect interest rates to reach around 6% next year hawkish due to the need to counteract the inflationary (see Chart 43), although given the latest inflation outlook we impact of the Government’s energy support through find this scenario to be less likely. this winter, as it has the potential to raise inflation in the medium term by shoring up household incomes and The combination of high inflation, which erodes the spending against more extreme energy price fluctuations. real value of earnings, and rising interest rates, which raise the cost of debt, have created the conditions for The new Government announced a large package of fiscal an unprecedented squeeze on household incomes. In loosening amounting to around £160 billion over the next September, UK consumer confidence fell to a record low as two years, equivalent to 3.2% of GDP per annum. This the effect of the income squeeze was felt by households. included £45 billion of permanent tax cuts, funded by higher This could signal a shift in demand towards more essential borrowing. Following this announcement, worries about goods and services. In addition, a more cautious attitude the sustainability of UK public finances have led to a sharp to spending could lead some to maintain a higher level of increase in Gilt yields and a fall in the value of the pound. savings buffer, which would further weaken consumption growth. We therefore expect overall consumption to grow by 3.7% this year and fall by 0.4% in 2023. Chart 43: Market expectations for the peak in Bank Rate over the next 5 years Investment is also expected to remain weak throughout the next 15 months due to weaker growth lowering 7% investment returns, higher cost of borrowing due to 6% tighter financial conditions, and the expected phasing out of the Government’s super deduction scheme on plant 5% and machinery investment, which is due to end in March 4% 2023. Offsetting this may be an increase in public sector investment, although details of specific policies remain Interest rate3% unclear. Our latest estimates for investment point to growth 2% of 5.8% in 2022, followed by a milder rise of 1.3% in 2023. 1% 0% 2008 2010 2012 2014 2016 2018 2020 2022 Bank Rate Expected peak in Bank Rate Source: Bank of England, BIS, KPMG analysis. Note: Latest data are for 26 September. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 46

Global Economic Outlook – September 2022 The UK economy is likely to already be in recession since Chart 44: Outlook for UK GDP the second quarter of this year, which we expect to last for three quarters. The slowdown in domestic demand has 9 Forecast led to a weakening of growth momentum following the 6 boost provided by a post-pandemic recovery early this year. The potential contraction in output among some of the 3 UK’s main trading partners could see further slowdown in export growth this year. Nevertheless, compared to past 0 downturns, the scale of the current downturn could be -3 relatively mild, with the level of GDP falling by 1% between Q1 and Q4 of this year. And despite this, GDP growth -6 is expected to reach 3.2% this year, greatly boosted by -9 weaker GDP in 2021 due to pandemic-related restrictions. Further out, a picture of stop-start growth in 2023 could Contributions to annual GDP growth, percentage points-12 2019 2020 2021 2022 2023 lead to a full year fall in GDP of 0.2% compared to 2022. Consumption Government Investment Net trade Other (inc. stocks) GDP growth (%) The UK labor market has continued to surprise to the Source: ONS, KPMG analysis. upside this year. The unemployment rate has fallen from a Covid peak of 5.2% at the end of 2020 to 3.6% in the three months to July, its lowest level since 1974. Around three quarters of that fall were due to a rise in employment Chart 45: Outlook for UK unemployment rate, as slowing population growth has not kept up with the pace of hiring against the backdrop of a tight labor market. 9% In addition, a fall in participation rate – driven largely by an Forecast increase in the long-term sick – has inadvertently helped 8% to keep unemployment low. We expect these factors ver 7% to continue to depress labor supply over the medium 6% term. As a result, we have revised down our forecast for 6 and o 5% unemployment to 3.7% in 2022. 4% We then expect the economic slowdown to gradually filter 3% through to the labor market, with lower demand putting Unemployment rate, 12% less pressure on employers to recruit new staff. Although 1% the job vacancy rate is still around record highs, there 0% are tentative signs that the market could soon begin to 2010 2012 2014 2016 2018 2020 2022 2024 slacken. For example, leading indicators – including the KPMG/REC survey – suggest that staff availability has now Source: ONS, KPMG analysis. returned to pre-Covid average, while a drop in average hours (typically seen as an indicator of labor utilization) suggests that weaker demand has so far led firms to use their staff less intensively. Our forecast for 2023 now sees the unemployment rate averaging 4.3%, slightly lower than during the Covid pandemic. Michal Stelmach Senior Economist, KPMG in the UK Dennis Tatarkov Senior Economist, KPMG in the UK © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 47

Global Economic Outlook – September 2022 Central and Eastern Europe: Not a uniform story Substantial, but varying Higher GDP growth projections Strong interest rate increases as energy exposure towards compared to Eurozone peers, a response to elevated prices, Russia leads to heterogenous but higher inflation rates leading with only Turkey lowering rates shock impacts. to significant downside risks. despite galloping inflation. The central and eastern European countries are subjected to a significant shock from the ongoing war between Russia and Ukraine. Due to their economic interrelations and geographic proximity, CEE countries are specifically at risk from the decoupling of the Russian economy from the West. Nevertheless, despite ongoing sanctions against Russia and Belarus and therefore anticipated collateral 1 damage for the CEE countries (CEE-11 , Georgia, Serbia and Turkey), positive growth is expected for the third and fourth quarter of the year, despite a substantial slowdown. Negative effects of the war, sanctions between the West and Russia amid unfolding energy challenges are expected to be dragged far into 2023 and pose a threat 2 to the economic performance and growth of the region. An at least technical recession in some CEE countries is therefore to be expected. Data released in the summer months confirm this scenario, with new challenges ahead. On the inflation side, the economic environment still does not assuage inflationary concerns with the indicators in Chart 46: Share of imports and exports CEE countries still reaching new highs even if peaks seem in CEE by trading partner near. Energy prices remain a key concern ahead of the winter season while governments pursue anti-inflationary 7% measures that seem increasingly likely to be prolonged or ts 6% extended in scope. 5% ts and expor4% Despite the war and ongoing sanctions, direct growth losses from trade are limited, as trade relationships 3% between Russia, Ukraine and Belarus and the CEE-11 2% economies overall are not substantial. As Chart 46 shows, Share of total impor1% direct import as well as export links between CEE and 0% Ukraine, Russia and Belarus are limited, compared to overall us us us us us us us us elarussia elarussia elarussia elarussia elarussia elarussia elarussia elarussia trade volumes (total imports from Russia amount to 1-6.1% B R UkraineBR UkraineB R UkraineBR UkraineB R UkraineBR UkraineB R UkraineBR Ukraine and exports to 0.7-2.9%). It is trade links to other countries Croatia Czechia Hungary Poland Romania Serbia Slovakia Slovenia of the European Union that are essential for the region. Imports Exports Source: UN Comtrade, World Bank, KPMG analysis. 1 CEE-11 countries: Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovenia, Slovakia. 2 Sovereign and Public Sector, Scope Ratings GmbH “Central and Eastern Europe MidYear Sovereign Outlook”, July 2022 (https://www.scopegroup.com/dam/jcr:129f4653-633a-41ab-b756-c4cdf2260787/Scope%20Ratings_2022%20Mid-Year%20CEE%20Sovereign%20Outlook.pdf) © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 48

Global Economic Outlook – September 2022 However, indirect trade links could prove to be a challenging Chart 47: CEE Inflation rates, selected countries factor for the CEE region. Supply-chain and trade interruptions, either caused by sanctions against or by 20% 90% Russia itself, could potentially cause shortages of key inputs 18% 80% and create logistical bottlenecks. Exports of manufactured 16% 70% goods play a significant role in many CEE economies for 14% which manufacturers themselves are dependent upon 60% 12% imported components. 50% 10% Inflation 40% Inflation Furthermore, soaring prices of key commodities such as 8% energy or metals have the potential to severely disrupt 6% 30% the economies of the CEE region. It leaves net energy 4% 20% importers such as Georgia, Ukraine, Turkey, Slovakia, 2% 10% Hungary and Serbia particularly exposed. Additionally, 90% 0% 0% Jan May Sep Jan May Sep of Turkey’s and Georgia’s wheat imports are from Russia 2021 2021 2021 2022 2022 2022 and Ukraine. The prices, however, are expected to remain Czech Republic Hungary Poland Romania Turkey (RHS) volatile and continue to increase, pushing up inflation and putting government finances and fiscal balance even further Source: Bloomberg. 3 under pressure. Economic and price developments in Turkey are becoming Chart 48: CEE selected money market rates increasingly worrying. Turkey’s inflation rate (> 80% CEE3 on a year-on-year basis in August 2022), is at a 24-year 14% 25% high. Rising global commodity prices are jeopardizing Turkey’s economic policy, which has sought to combat 12% 20% high inflation with a current account surplus. Furthermore, 10% there are indications that the government will be forced to restrict agricultural exports as Turkish farmers struggle et rate8% 15% et rate with internationally rising commodity prices, supply chain 6% problems and rising prices of fertilizers and fuels. 10% Money mark Money mark 4% Developments are similar throughout the CEE Region. 5% Rising commodity prices, booming demand and supply-side 2% bottlenecks have contributed to a steady and significant 0% 0% increase in inflation. In August, inflation reached 16.1% in Jan May Sep Jan May Sep 2021 2021 2021 2022 2022 2022 Poland, the Czech Republic reported 17.5% and Hungary 15.6%. This strong price momentum is expected to Czech Republic Hungary Poland Romania Turkey (RHS) continue in the remaining months of 2022 due to high global Source: Bloomberg. energy and food prices and rising core inflation. Inflation movements lead to significant increases in central bank rates, being reflected in elevated money market rates, with the strongest increase in Hungary. Despite galloping inflation in Turkey, money market rates came down, exacerbating exchange rate losses of the TRY (effective exchange rate index down by around 50% since end-2020), therefore creating additional inflationary pressure. 3 Sovereign and Public Sector, Scope Ratings GmbH “Central and Eastern Europe MidYear Sovereign Outlook”, July 2022 (https://www.scopegroup.com/dam/jcr:129f4653-633a-41ab-b756-c4cdf2260787/Scope%20Ratings_2022%20Mid-Year%20CEE%20Sovereign%20Outlook.pdf) © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 49

Global Economic Outlook – September 2022 An important trigger for future development is the lingering Several central and eastern European countries are taking problem of Russian gas dependency throughout the CEE. action in order to cut reliance on Russian gas or coal, Even though the situation throughout central and eastern including the Czech Republic. The energy company ČEZ and Europe proves to be heterogenous, the dependency on the Czech state have secured storage capacity in a liquefied Russian gas is high for the majority of countries. Poland, natural gas (LNG) terminal in the Netherlands that enables Bulgaria, Slovakia, Slovenia and Hungary are particularly reducing dependence on Russian gas by roughly one-third. reliant, since more than 80% of gas consumption is sourced Following the outbreak of the war, Poland banned the import from Russia. A more prolonged interruption of gas deliveries of Russian coal, cutting off the main source of domestic could nullify any near-term economic growth, leading coal supply with few substitutes available on the market. As to a recessionary outlook and a significant increase of a result, the price of coal skyrocketed from an average of inflation rates. just under PLN1,000 per tonne to more than PLN3,000 per tonne. This contributed to a GDP contraction of 2.3% in Q2 2022 from the previous quarter, raising the likelihood of a Chart 49: Gas dependency, CEE recession in 2022. Set against that, Turkey as well as Hungary are refusing to Serbia agree and support the EU sanctions on Russia. Turkey is Bulgaria supplied with more than a third of its natural gas by Russia Czech Republic and at the end of August it came to the agreement of a Slovakia partial rouble payment system for gas. Hungary, which is Slovenia about 85% dependent on Russian gas, has lobbied hard Hungary to secure an exemption from EU sanctions on Russian Croatia crude oil imports and is the only EU member state to Poland have categorically ruled out acting on a plan to cut gas Ukraine consumption by 15% from August 2022 until March 2023. Romania 0% 20% 40% 60% 80% 100% Share of gas in final energy consumption, %, 2020 Dr. Stefan Fink Share of Russia in overall gas imports, %, 2021 Chief Economist, KPMG in Austria Source: Bruegel based on Entso-G and Eurostat. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 50

Global Economic Outlook – September 2022 South Africa: A growth recession as inflation rises Economic growth Inflation to peak in 2022 and then Current account surplus back to pre-pandemic return to midpoint of South Africa’s continues as global growth levels. inflation target range. expectations moderate. South Africa is returning to pre-Covid levels of economic Table 17: KPMG forecasts for South Africa growth and is currently facing the inflationary implications 2021 2022 2023 that arose as a direct consequence of the pandemic and the Russian invasion of Ukraine. Interest rates are rising and, GDP 4.9 1. 8 1. 5 as with the rest of the world, growth prospects are being Inflation 4.6 7. 3 6.1 reduced accordingly. Unemployment rate 35.3 34.3 34.7 The South African policy rate has increased from a low of 3.5% in Q3 2021 to a current level of 5.5% and the Source: Statistics South Africa, KPMG analysis. consensus forecast is for a further increase of around 1 percentage point by the end of 2022. These increases would leave the policy rate at the level recorded prior to the onset of the pandemic and have led to a reduction in potential growth level attainable over the near-term. Even though increasing interest rates have resulted in slowing growth prospects, the main contributor in this regard remains the insufficient and inconsistent supply of electricity from South Africa’s energy supplier Eskom, with over half of all business days in the second quarter of 2022 experiencing some degree of load shedding or electricity supply restriction. This barrier to growth has been recognized by the government, which in July announced the scrapping of license requirements for private power generators in a sweeping overhaul of the South African energy industry. However, given the lags associated with implementing large scale energy projects, it will take some time before the effects of these policy changes are realized. South Africa is in a relatively unique position with many of 1 its natural resource exports mirroring those of Russia and consequently it has profited from the rise in commodity prices caused initially by both Covid and, latterly, the conflict in Ukraine. The result of the increase in commodity prices has been an improvement in South Africa’s terms of trade which has led to recent surpluses on its current account since 2020, only returning to deficit in the second quarter of 2022. 1 These include palladium and other platinum group metals, gold, iron ore, coal as well as many other industrial metals. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 51

Global Economic Outlook – September 2022 GDP is set to grow by around 1.8% in 2022, led by Little tangible policy action has been taken to increase the contributions from the finance, real estate and business lower investment and consumption spending caused by services sector, growth in personal services as well as a reaction to a number of governance failures, including mining, agriculture and trade, catering and accommodation. ongoing policy uncertainty, corruption, aging infrastructure The projected growth in 2022 is noticeably lower than that and continued power shortages, the absence of growth- achieved in 2021. It should however be understood that stimulating policy interventions and inadequate levels of much of that growth was due to technical base effects service delivery. More will need to be done to lift the South following the sharp Covid-induced contraction experienced African growth trajectory above its current long-term level. in 2020. The predicted rate of economic growth would not be Growth in 2023 is expected to decline further to 1.5%, sufficient to reduce the high unemployment rate, forecast with higher interest rates and lower global growth reducing at 34.3% for 2022. South Africa is set to remain in a aggregate demand locally. In 2024, economic growth paradoxical state of a growth recession, where slow growth should return to the average pre-Covid level of around is accompanied by rising unemployment unless some of the 1.7% as inflationary pressures abate and global growth barriers to growth listed above are explicitly addressed. rates improve. Global inflationary pressure continues to weigh on the economy and remains largely cost-push in nature as Chart 50: South Africa’s current account balance (Rbn) aggregate demand still lags below its potential level. The main drivers of forecast consumer inflation remain energy 400 prices, including both fuel and electricity prices, as well 300 as food prices caused by ongoing supply chain disruptions following the pandemic and exacerbated by the conflict 200 in Ukraine. 100 Although the global increase in commodity prices 0 has slowed somewhat on the back of lower growth rent account balance (Rbn) expectations, South Africa still faces elevated fuel and food Cur-100 production costs. Energy supply, and in particular electricity, -200 remain an ongoing concern for South Africa whose energy regulator awarded the state-owned utility an above inflation -300 9.6% increase in energy prices from 1 April 2022. 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Source: Statistics South Africa, South African Reserve Bank, KPMG analysis. The strength of the U.S. dollar, combined with lower global growth expectations, have eroded the positive balance on South Africa’s current account resulting from elevated Chart 51: South Africa’s consumer price commodity prices and led to an acceleration in inflation. inflation (headline indexed 2020 - 2022) Headline consumer inflation rate is expected to reach well above the upper boundary of the central bank’s inflation 110 targeting range of 3% to 6%, at around 7.3% in 2022, 108 before moving back towards the upper bound of 6% in 2023 and further to the midpoint of the targeting range in 2024. 106 0 0 104 anuary = 1 Frank Blackmore 102 Lead Economist, KPMG in South Africa Index, J 100 98 96 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 2021 2022 Source: Statistics South Africa, KPMG analysis. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 52

Global Economic Outlook – September 2022 Nigeria: Sustaining positive growth amid low oil production and rising inflation Nigeria’s economy is The inflation rate is expected to The unemployment rate is expected to continue on remain in double digits in the short expected to remain heightened a positive trend, driven by to medium term due to structural due to limited investment by firms growth in the non-oil sector. challenges and rising energy prices. and low manufacturing capacity. Nigeria’s economy exceeded analysts’ expectations in 2021 Table 18: KPMG forecasts for Nigeria as it grew by 3.4%. The Central Bank of Nigeria (CBN) had 2021 2022 2023 estimated a growth rate of 3.1%, while the IMF projected 2.6%. According to the National Bureau of Statistics (NBS), GDP 3.4 3.4 3.5 real Gross Domestic Product (GDP) grew by 3.1% in Q1 Inflation 15.6 16.1 13.1 2022 and 3.5% in Q2 2022. The economy has thus grown Unemployment rate 34.2 38.3 42.7 for seven consecutive quarters, following its exit from recession in 2020. This consistent positive performance was Source: NBS, CBN, IMF and KPMG forecasts. driven largely by the continuous growth in the non-oil sector, particularly in the financial services, telecommunications and agriculture subsectors. Year-on-year headline inflation rose to 19.6% in July 2022 Chart 52: Nigerian GDP annual growth from 18.6% in June 2022, according to the Central Bank of Nigeria data. 5% 4% 3% 2% 1% GDP growth, %0% -1% -2% -3% 2015 2016 2017 2018 2019 2020 2021 2022 2023 GDP Upperbound Lowerbound Forecast Source: Nigeria Bureau of Statistics (NBS) (2015-2021), IMF (2022 and 2023), KPMG forecasts. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 53

Global Economic Outlook – September 2022 In July 2022, both the core and food components of Chart 53: Inflation rate, Nigeria inflation increased to 16.2% and 22.0% respectively, which drove the rise in headline inflation rates. The increasing 18% inflation may further reduce households’ purchasing power and increase the cost of business operations. 16% The unemployment rate in Nigeria stands high at 33% 14% whilst under-employment stands at 22.8% based on data from the NBS. Youth unemployment has been historically 12% high and currently stands at 42.5%. The burden of Inflation rate, % 10% unemployment has been prevalent over the years due to limited investment by firms and low manufacturing capacity. 8% The government is committed to reversing this trend and has recently launched the National Development Plan 6% 2021 – 2025 aimed primarily at significant infrastructure 2018 2019 2020 2021 2022 2023 investment, macro-economic stability, and a friendlier Source: Central Bank of Nigeria (2018-2021), IMF (2022-2023). investing environment, to generate 21 million jobs. Growth is expected to continue to be driven by non-oil sectors, fiscal expenditure by the government, CBN’s Chart 54: Average annual unemployment rate, Nigeria intervention programs to support the real sector and the 45% efforts to prevent further increases in the inflation rate. 40% 35% Oluwole Adelokun 30% Associate Director, Strategy and Economics, 25% KPMG in Nigeria 20% 15% verage annual unemployment rate , %10% A 5% 0% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 (est.) (est.) Source: Nigeria Bureau of Statistics (NBS); KPMG forecasts. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 54

Global Economic Outlook – September 2022 Appendix: Summary of KPMG forecasts GDP Inflation Unemployment 2021 2022 2023 2021 2022 2023 2021 2022 2023 World 5.8 2.7 1.9 3.4 7.6 4.7 6.1 5.4 5.5 US 5.7 1.5 - 0.1 4.7 8.2 3.8 5.4 3.7 4.3 Canada 4.5 3.4 1.3 3.4 6.8 3.4 7.4 5.3 5.6 Argentina 10.4 3.6 0.0 50.9 95.2 87.0 9.3 9.2 8.1 Brazil 4.8 1.9 0.8 8.3 9.8 5.8 13.6 10.4 10.1 Chile 11.7 2.0 -0.6 7.2 12.4 4.7 8.8 8.2 8.1 Mexico 5.0 1.7 1.5 5.7 8.0 5.5 4.1 3.5 3.8 Colombia 10.7 6.6 2.1 5.6 10.7 5.6 13.8 11.6 9.9 Peru 13.5 2.7 2.4 6.4 7.2 3.5 10.9 9.3 8.8 Germany 2.6 1.5 -0.5 3.2 8.0 6.8 3.6 2.9 3.0 Austria 4.8 3.9 0.3 2.8 8.5 5.8 6.2 4.6 4.6 France 6.8 2.5 0.6 2.1 5.9 3.9 7.9 7.5 7.7 Italy 6.6 3.3 0.3 1.9 8.1 4.9 9.5 8.2 8.5 Netherlands 4.9 3.0 1.0 2.8 10.1 3.9 4.2 3.6 3.8 Spain 5.1 4.1 1.8 3.0 9.3 4.9 14.8 12.8 13.0 Ireland 13.4 7.0 4.5 2.5 7.5 4.0 6.2 4.5 4.5 Eurozone 5.3 2.7 0.5 2.6 8.3 6.7 7.7 6.7 6.9 Norway 4.1 3.1 1.6 3.5 5.5 3.6 4.3 2.8 2.8 Sweden 5.1 2.4 0.8 2.2 7.4 4.8 8.8 7.4 7.4 Switzerland 4.2 2.5 1.2 0.5 2.9 1.8 5.1 4.3 4.2 UK 7.4 3.2 -0.2 2.6 8.9 5.6 4.5 3.7 4.3 Poland 5.9 4.1 1.4 5.1 13.8 10.9 3.4 2.9 2.9 Turkey 11.0 4.8 2.2 19.6 72.1 38.2 12.0 11.8 11.8 China 8.1 3.5 5.2 0.9 2.5 2.3 5.1 5.4 5.1 Japan 1.7 1.6 2.2 -0.2 2.4 1.6 2.8 2.5 2.6 Australia 4.9 4.2 2.2 2.9 6.3 5.2 5.1 3.8 4.4 India 8.7 7.2 6.3 5.5 6.7 5.0 8.0 7.6 7.1 Indonesia 3.7 5.7 4.7 1.6 4.4 4.0 6.4 5.7 5.9 Malaysia 3.2 8.6 4.8 2.5 3.6 3.1 4.6 3.9 3.9 Philippines 5.5 6.1 5.1 3.9 5.6 3.8 7.9 5.8 6.0 Singapore 7.6 3.5 3.5 2.3 5.9 2.9 2.7 2.1 2.3 South Korea 4.1 2.8 2.5 2.5 5.4 3.2 3.7 3.1 3.1 Saudi Arabia 3.2 8.0 3.6 3.1 2.6 2.3 6.6 6.0 6.0 Nigeria 3.4 3.4 3.5 15.6 16.1 13.1 34.2 38.3 42.7 South Africa 4.9 1. 8 1. 5 4.6 7. 3 6.1 35.3 34.3 34.7 Source: National statistical agencies, KPMG analysis. Note: Average % change on previous calendar year except for unemployment rate, which is average annual rate. Figures for India represent fiscal years 2021-22, 2022-23 and 2023-24. Consumer price inflation measured as % change Dec-on-Dec for Argentina, Chile, Colombia and Peru. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 55

Contacts United Kingdom Germany Yael Selfin Dr. Ventzislav Kartchev Chief Economist, KPMG in the UK Head of Business Intelligence/Markets, [email protected] KPMG Germany Dennis Tatarkov [email protected] Senior Economist, KPMG in the UK Austria [email protected] Dr. Stefan Fink Michal Stelmach Chief Economist, KPMG in Austria Senior Economist, KPMG in the UK [email protected] [email protected] The Netherlands United States Diego Vilchez Neira Diane Swonk Senior Manager, KPMG in the Netherlands Chief Economist, KPMG US [email protected] [email protected] Ireland Canada Dr. Daragh Mc Greal Mathieu Laberge Director, Strategic Economics, KPMG in Ireland Partner, Economics & Policy, KPMG in Canada [email protected] [email protected] South Africa Australia Frank Blackmore Dr. Sarah Hunter Lead Economist, KPMG in South Africa Senior Economist & Partner, KPMG in Australia [email protected] [email protected] Nigeria China Oluwole Adelokun Kevin Kang, PhD Associate Director, Strategy and Economics, Chief Economist, KPMG China KPMG in Nigeria [email protected] [email protected] India Preeti Sitaram Director, Government & Public Services, KPMG in India [email protected] home.kpmg/globaleconomicoutlook The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. KPMG refers to the global organization or to one or more of the member firms of KPMG International Limited (“KPMG International”), each of which is a separate legal entity. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. For more detail about our structure please visit https://home.kpmg/governance Throughout this document, “we” and “KPMG”, refers to the global organization or to one or more of the member firms of KPMG International Limited (“KPMG International”), each of which is a separate legal entity. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. | | CREATE CRT143259 September 2022