The same three drivers that we’ve discussed above could just as easily become a source of downside risk, too.

Firstly, the recent US data turns out to have been massively overstating economic resilience. We already know that payrolls are set to be revised down, but so far only as far as March. More substantial revisions may eventually follow thereafter. This implies that the Sahm rule, which has been triggered by a half-a-percentage-point rise in the unemployment rate from its prior 12-month low, turns out to be a reliable recession signal after all.

Secondly, the risk is that the challenges in the Chinese property market continue to mount despite recent government stimulus. Sentiment remains weak. And local government finances, which were previously heavily reliant on land sales and real estate development, prove to be a major drag on economic activity.

But it’s oil that is undoubtedly the biggest “known unknown” in our global macro forecast. The risk, as our commodities team has detailed, is that material escalation in the Middle East, prompted by a blockade in the Strait of Hormuz, doubles oil prices.

The impact on inflation would be substantial. Headline CPI in the US/eurozone would increase by 1.5-2.0ppt due to gasoline costs alone, and by greater still once the indirect impact on food and other goods prices is accounted for. Both the US and eurozone slip into recession.

Consumer spending turns weaker in the major economies, and the challenges the manufacturing industry is already experiencing become magnified. Greater use of tariffs, depending on the US election winner, would add to those issues.

Central banks face a dilemma – look through the rise in oil prices and support demand, or keep rates elevated in order to balance second-round effects. Experience from the past couple of years suggests policymakers might opt for the latter. Rates fall back to neutral more quickly but don’t go materially “accommodative”.

However, that stance could quickly change assuming the recession in major economies causes widespread layoffs and a further spike in US/European unemployment rates. Higher central bank rates would become increasingly untenable and that ultimately forces a second wave of rate cuts into more expansionary territory and central banks switch focus to generating a recovery.

An unexpected recession, coupled with initially elevated central bank rates, could imply even greater scrutiny of government finances. Rate cuts would still herald some relief for debt interest costs, but any positive impact that has on deficits is offset by lower revenues/higher social spending. Government bond yields trade with a greater fiscal risk premium, potentially implying wider spreads in Europe. That would add another layer of difficulty for the eurozone economy.