Recession risks are elevated in both US and EU but drivers and timing remain distinct Key risk indicators US EU Baseline expectations for very slow growth, Negative growth in 4Q22/1Q23 expected to be Select business implications 1 GDP growth under 1%, through 2023 a trough as growth accelerates later in 2023 • Margin compression underway, as passing through 2 Inflation Inflation may have peaked, but concern Inflation surge has hammered real incomes price increases gets harder remains over the degree of moderation but remains largely about energy • Labor markets may remain tighter than in prior 3 Financial An equity bear market and much higher Sharply lower stock prices and increasing downturns, keeping labor markets borrowing rates are headwinds to activity borrowing rates are a headwind to activity retention top of mind Monetary Monetary policy has tightened but does not • Interest rates may stay 4 Policy will tighten until price trends improve higher for longer, with d. policy intend to become a large sustained headwind distinct cost of capital erve implications esr Labor market remains strong with solid job Labor markets still tight, pointing toward ights l r 5 Labor market • Overall, a recession increases Al. creation and low unemployment rates residual strength roup competitive spread – to G outperform in the long run, ting Surveys of manufacturing activity point to a Surveys of manufacturing activity point to a sul 6 Manufacturing businesses need to build Con significant slowdown in growth contraction resilience & seek advantage ton osB • Winners are likely to target by 2 Magnitude of risk Key risk: Policy tightening, driven by Deep energy shock has hammered real Very high 202 persistent high inflation, delivers a incomes and impaired competitiveness, M&A and CAPEX through the © High recession in 2023 leaving Europe in near-term recession downturn to build strength ight Moderate opyr for the next cycle 6 C Source: BCG