Scorching prices and rising interest rates are at risk of vapourizing all-important consumer spending in the United States. Caught in the crosshairs of war, Europe is fighting fires on multiple fronts, as industry struggles with hot energy prices, the prospect of gas rationing, and new supply chain disruptions, in the context of evaporating consumer confidence and a number of simmering political crises. Developing markets continue to sweat food and fuel shortages, while China manages the impact of its stifling public health restrictions. 

Maybe we need to replace the popular Ella Fitzgerald summer soundtrack with Bananarama’s Cruel Summer. With that in mind, EDC Economics updated its list of the Top 10 global risks facing the global economy. In no particular order, here’s what’s keeping our dismal scientists up In the Heat of the Night

In efforts to tame surging prices and manage inflationary expectations, central banks in the U.S., Canada and Europe are aggressively raising interest rates and running down balance sheet accumulations. Tighter financial conditions will dampen consumers’ ability to spend and, depending on the pace and magnitude of the tightening, could drive advanced economies into recession

What’s more, as interest rates jump well-above neutral levels, a significant repricing of risk will ensue. Depending on the terminal rates at which central banks ultimately land, such repricing could have disruptive impacts on financial markets, hitting equity, credit and even housing markets, taking the shine off certain commodities and impacting currency stability. 

A repricing of risk could also expose overleveraged corporates who’ve spent the last number of years loading up on unproductive debt, incentivized by generous government programs and record low borrowing costs. With non-financial corporate debt reaching an estimated 98% of global gross domestic product (GDP) by the end of 2021, a wave of corporate defaults remains a key vulnerability for the global economy. Government debt also ballooned over the pandemic, with close to 50 countries now either in debt distress or at a high risk of it.

While the risk of a systemic sovereign debt crisis remains low, higher interest rates in advanced economies could reverse capital flows into developing markets. The strong U.S. dollar further adds to pressures facing those countries with high levels of dollar-denominated debt. 

Supply chain vulnerabilities
may have gained prominence because of COVID-19, but the risks posed by integrated production networks won’t fade with the pandemic. Extreme weather, geopolitical uncertainties, or even another global pandemic could easily disrupt supply chains again. While manufacturers have boosted inventories in response, companies will look to better balance resiliency and efficiency going forward. 

As companies secure their production processes, governments are also increasingly adopting industrial policies in order to safeguard strategic sectors and reduce economic dependency. An unwinding of globalization risks adding costs to consumers and taxpayers, and jeopardizing wealth creation for trading nations, like Canada.

The impact of the Russia-Ukraine conflict and Western-led sanctions on Russia upended the supply of key commodities and raised questions around traditional transport networks. While our base-case sees a war of attrition as the most likely scenario, an escalation and expansion of the war beyond Ukraine’s borders and involving other actors remains a risk to the outlook, with impacts on global inflation, growth and financial markets. 

The war in Ukraine exacerbated world energy and food shortages. High fuel and food prices, and their inflationary effects, have increased economic uncertainty and social unrest across the globe. The energy crunch has also altered the geopolitical landscape, as countries seek alternative supplies of energy, and could shift the global energy trade’s centre of gravity from petrostates to electrostates. 

As the cost of food and fertilizers rise, the effects of a global food crisis are being felt by consumers and governments around the world. In many developing markets the impact could be catastrophic, unwinding development gains made over the past decade and contributing to political unrest across much of the Global South.  

International recognition of the need for urgent action on climate and other environment, social and governance (ESG) challenges has increased pressure on governments and industry to demonstrate stronger commitments in these areas. These commitments are moving from voluntary programs to regulatory requirements and prompting convergence around ESG standards and targets. Companies not ready for these changes, or that haven’t factored in transition costs, will be priced out of the market.

The bottom line?

As we struggle to exit the global pandemic, the path ahead is fraught with risk. Many of these risks are interrelated and interdependent, perhaps more-so than at any other time in recent history. Here’s hoping that a gentle unravelling of these risks is more than just a Summertime Dream

This week, a special thanks to Ella Fitzgerald, Bananarama, Ray Charles and Gordon Lightfoot, and of course the analysts of the Economic and Political Intelligence Centre.

As always, at EDC Economics, we value your feedback. If you have ideas for topics that you would like us to explore, please email us at and we’ll do our best to cover them.

This commentary is presented for informational purposes only. It’s not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.