While COVID-19’s remarkable effects on economies and policies remain top of mind, a new set of uncertainties has entered the picture.

 It’s been an eventful 2022 so far and Invesco’s Mid-Year Investment Outlook finds that, while the world continues to move past the COVID-19 pandemic, its effects on economies and policies remain top of mind. As a new set of uncertainties enters the picture, asset owners have been adjusting to historic moves by both fiscal and monetary policymakers and the dual forces of rising interest rates and inflation. Russia’s invasion of Ukraine has exacerbated these pressures through surging energy and commodity prices and shrinking economic growth.

What does all this mean for markets and for asset owners? Our base case:

 Europe – Invesco’s base case scenario sees hostilities continue in the current vein without the escalation that might cause an abrupt disruption to Russian energy supplies to Europe (either because of an EU boycott or an embargo from Russia). With uninterrupted energy supplies but still high energy prices, Europe faces high inflation and slowing growth through 2022 and into 2023. This is a challenging combination that we expect will lead to only one or two European Central Bank rate hikes in 2022.

US – In the US, we expect continued momentum from the post-Omicron reopening to help sustain growth despite the Federal Reserve’s (Fed) efforts to achieve a neutral policy rate as quickly as possible and shrink its balance sheet.

China – In contrast with major developed Western economies, China continues to be in a substantially different cyclical position, largely driven by continuing challenges resulting from the pandemic. We expect a reacceleration of Chinese growth in the second half of 2022, largely driven by policy support. Average market volatility is likely to remain higher than in 2021 as markets adjust to tighter monetary conditions.

The bottom line? Our base case anticipates higher inflation and slowing growth globally, but not recession. That’s just one scenario, however – other potential developments and shocks could dramatically change this outlook.

Check out Invesco’s 2022 Mid-Year Outlook to read the full analysis and see what could happen next and what it means for investors.