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Global Economic Outlook: Q1 2023

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At the outset of 2023, the global economy has seen some positive signs as inflation and energy prices ease from their peak levels. China’s ending of its zero-COVID policy also provides some growth impulses, though its full impact has not yet been unfolded. Nevertheless, the global macroeconomic environment remains challenging for economies, business and consumers in the year ahead.

The global economy is forecast to grow by 2.3% in real terms in 2023, the weakest growth since 1993, apart from the recession years of 2009 and 2020

Source: Euromonitor International

The global economic outlook for 2023 is among the weakest in decades, with global real GDP growth forecast to increase by 2.3% in 2023, further down from 3.3% recorded in 2022. Though global inflation is expected to moderate from 9.1% in 2022 to 6.8% in 2023, it is still at historic highs. The high costs of living, rising interest rates and ongoing geopolitical uncertainties will continue to dent private consumption and investment in many parts of the world, undermining the global growth outlook.

Advanced economies edge close to recession in 2023

Recession concerns have been intensifying in advanced economies as their growth outlook steadily worsened over the course of 2022. Despite beating expectations in the final months of last year, advanced economies are forecast to see stagnant growth in 2023. That is because businesses and consumers will feel the impact of steadily increasing prices and rising borrowing costs. This will result in additional cuts to their purchasing power as well as investments, thereby sharply slowing economic activity.

Real GDP Growth Baseline Forecast 2020-2024Global Economic Outlook Q1 2023 Chart 1.svgNote: (1) Data from 2023 are forecasts, updated 14 January 2023. (2) Regional real GDP growth calculated using PPP weights.

In Euromonitor International’s Q1 2023 baseline forecasts, US real GDP growth is predicted to decline to 0.2% in 2023 and 1.4% in 2024. This represents 0.3 and 0.1 percentage point downward revisions, respectively, compared to the previous quarter’s forecasts. In addition to easing but elevated inflation, slowing growth in the US primarily results from rapid interest rate increases by the US Federal Reserve to tame inflation, starting in Q1 2022. Their dampening effect on economic activity and private sector confidence will only be fully felt in 2023. Increasingly restrictive monetary policy will eventually weaken the robust labour market and strong consumer spending, and thereby also the key pillars that helped the US economy avoid recession in 2022.

The Eurozone economy is forecast to grow by 0.2% in 2023 and 1.6% in 2024. Milder-than-expected temperatures during autumn and winter led to declined energy prices and a reduced risk of a severe energy crisis. Nonetheless, similar to the US, the Eurozone will edge close to recession in 2023 amid steadily high levels of inflation and continuously rising interest rates. Plus, unlike the US, the Eurozone will face lingering energy supply risks resulting from the war in Ukraine, with uncertainty noticeably affecting businesses and consumers.

A mixed outlook for emerging markets, with outsized contributions from Asia

Economic outlook is expected to vary among emerging and developing markets. In China, after weak growth recorded in 2022, the country’s reopening and end of zero-COVID policy in December 2022 is projected to release pent-up demand and boost consumption and growth. However, the near-term outlook could be clouded by a surge in COVID-19 infection that hampers economic activities. In addition, weakening external demand and persisting problems in the property sector are major drags on China’s economic recovery in 2023. As such, Euromonitor’s baseline forecast for China’s real GDP growth remains unchanged from the previous quarter, at 4.7% for 2023 and 4.9% for 2024.

Other Asian emerging markets, including India and some Southeast Asian countries, are expected to still outperform in 2023, though with a slower pace of growth compared to the previous year, as waning demand from the US and Europe will hit the countries’ exports and services sectors. Similarly, sluggish oil demand and volatile commodity prices will weigh on growth prospects for the Middle East and African economies in 2023-2024. In Latin America, economic growth is expected to remain subdued in major emerging markets such as Brazil and Mexico in the short and medium term, given tighter monetary policies and political instability.

Inflation continues to slow while multiple risks linger

In 2023, global inflation is expected to slow to 6.8% in Euromonitor International’s Q1 2023 baseline forecast, following a multi-decade high of 9.1% in 2022. Despite easing, emerging and developing economies will continue to record highly elevated inflation at 8.1% in 2023 amid persistent energy and food price pressures.

In advanced economies, inflation will remain significantly above trend at 5.2% in 2023

Source: Euromonitor International

In advanced economies, inflation will remain significantly above trend at 5.2% as price pressures move from energy, food and goods to become increasingly entrenched in the services sectors.

Global Consumer Price Inflation Baseline Forecast 2020-2024Global Economic Outlook Q1 2023 Chart 2.svgNote: (1) Inflation refers to consumer price inflation measured by consumer price index (CPI). (2) Data from 2023 are forecasts, updated on 14 January 2023. (3) Regional real GDP growth calculated using PPP weights.

Slowing demand and rising interest rates in most economies globally will continue to weaken inflationary pressures over the course of 2023. However, multiple risks could prompt an inflation resurgence in the short to medium term. Immediate risks primarily emanate from additional supply disruptions in the context of the war in Ukraine and China’s reopening which could aggravate a broad-based cost-of-living crisis. In the medium term, worsening geopolitical tensions, the rewiring of global supply chains and increasingly frequent extreme weather events pose considerable inflation risks.

For more detailed analysis, read the full report, Global Economic Forecasts: Q1 2023

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