We have lowered our 2022 global GDP growth outlook following the invasion of Ukraine by Russia, one month ago. A commodity supply shock has pushed up CPI inflation expectations and contributed to a shift in our expectations regarding the timing and size central bank rate hikes. Our outlook focuses on the reflationary consequences of strong underlying demand and rapidly tightening supply as well as the commodity and financial market response to the Russian invasion of Ukraine. Against the backdrop, in March, we maintained our current outlook of three months of inflation followed by nine months of growth for the U.S. economy.

The Chinese economy faces elevated risks due to their somewhat less effective vaccines and the zero-tolerance policy on Covid infections. China’s annual inflation rate stood at 0.9% in February 2022.1 China’s surveyed urban unemployment was at 5.5% in February, up from 5.3% in January.2 GDP in the Euro Area expanded 4.6% year-on-year in the fourth quarter of 2021.3 The annual inflation rate in the Euro Area rose to a record high of 5.9% in February from 5.1% in January.4 Russian energy became a pressure point in the war in Ukraine, with the U.S. banning oil and gas imports, the U.K. banning oil imports, and the European Commission aiming to cut gas imports by two-thirds.

Given the combination of an aggressively tight labor market and significantly above-target inflation, the Fed has waited much longer to start raising rates than at any point over the last 30 years. The U.S. unemployment rate edged down to 3.8% in February from 4% in the previous month, a new pandemic low.5 Annual inflation rate in the U.S. accelerated to 7.9% in February, the highest since January of 1982.6 The U.S. trade deficit widened to a record high of $89.7 billion in January from an upwardly revised $82 billion in the previous month. It reflects an increase in the goods deficit of $7.1 billion to $108.9 billion, as soaring energy costs pushed imports to a record high while the services surplus narrowed by $0.6 billion to $19.2 billion.7 The Canadian economy grew by 1.6% in the fourth quarter of 2021, the most in 4 quarters and following a 1.3% expansion in the third quarter.8 Canada’s annual inflation rate quickened to 5.7% in February, the highest since August of 1991.9 The unemployment rate in Canada fell to 5.5% in February from 6.5% in January. It was the lowest jobless rate since January of 2020, officially reaching pre-pandemic levels after 25 months.10 Canada posted a trade surplus of CAD $2.62 billion in January of 2022, compared with a downwardly revised deficit of CAD $1.58 billion in December. It was the widest trade surplus since September of 2008.11

The Federal Reserve is now challenged to balance increasing inflation expectations with the risk of a slowdown caused by the war in Europe, approving a 1/4 percentage point increase in the primary credit rate to 0.5%, effective March 17, 2022. Over 99% of S&P 500 companies have reported fourth-quarter earnings with earnings per share growth of 32%. First-quarter estimates are much lower at 5%. U.S. equities faced a challenging February, with the S&P 500 declining 3.0%. Smaller caps outperformed, with the S&P MidCap 400 and S&P SmallCap 600 up 1.1% and 1.4%, respectively. Energy continued its position as the best-performing sector in the S&P 500, up 7.1%, and was the only sector to post a gain.  Canadian equities were flat in February, with the S&P/TSX Composite up 0.3%. The S&P Europe 350 extended its January losses in February with another 3.0% decline, leaving it down 5.9% year-to-date.  The U.K. was up 0.8% in February. The S&P Pan Asia BMI declined 0.9%, weighed down by the S&P China 500, down 1.7%. Australia and New Zealand helped with gains.

We adjusted our Asset Allocation across all models in March. We reduced exposure to the 3-to-7-year U.S. Treasury bond by 15% and added 5% to the current gold exposure and 10% to Canada equities. We continue to rely on the safe haven status of gold in times of uncertainty, including war and inflation. Canadian oil and liquid natural gas directed through the U.S. pipeline system for export to Europe along with their higher prices will benefit Canada. We are monitoring large cap U.S. equity exposure. U.S. fiscal spending that will fund local governments supports our exposure to short-term treasuries and municipal bonds in the U.S. We believe that U.S. rate increases in 2022 will be done cautiously so as not to risk causing a recession.

Our expected lower GDP growth forecast is driven by higher commodity prices and tightening global financial conditions as shifting expectations for central banks and inflation risks push global interest rates higher. Meanwhile, real interest rates remain low, private sector balance sheets are healthy, and the impact of the global commodity shock is for now, limited. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.


Deborah Frame, President and CIO


1 Trading Economics. China Inflation. March 16, 2022.

2 Trading Economics. China Unemployment. March 16, 2022.

3 Trading Economics. Europe GDP Growth. March 8, 2022.

4 Trading Economics. Europe Inflation. March 17, 2022.

5 Trading Economics. U.S. Unemployment: U.S. Bureau of Labor Statistics. March 4, 2022.

6 Trading Economics. U.S. Inflation. March 10, 2022.

7 Trading Economics. U.S. Trade Gap: Bureau of Economic Analysis. March 8, 2022.

8 Trading Economics. Canada GDP Growth. March 1, 2022.

9 Trading Economics. Canada Inflation. March 16, 2022.

10 Trading Economics. Canada Unemployment: Statistics Canada. March 11, 2022.

11 Trading Economics. Canada Trade Surplus. March 8, 2022.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. February 28, 2022. Index performance is based on total returns and expressed in the local currency of the index.