03/05/2023

Source: Euromonitor International

The Global Economic Forecasts is a quarterly publication produced by Euromonitor International, a world-renowned consulting firm that strives to provide information on upcoming trends in the international market in order to facilitate decision-making by companies and provide information on the identification of business opportunities.

At the beginning of the year 2023, the world economy has seen positive signs as inflation and energy prices decrease compared to their peaks reached. The end, by China, of its zero COVID policy also gives impulses to growth, although its full impact has not yet been deployed. Nevertheless, the global macroeconomic environment remains challenging for economies, businesses and consumers in the coming months.

The global economy is expected to grow by only 2.3% in real terms in 2023, the weakest growth since 1993, outside the recession years of 2009 and 2020.

The global economic outlook for 2023 is among the weakest in decades, with global real GDP growth expected to increase by 2.3% in 2023, down from the 3.3% recorded in 2022. Although global inflation is expected to moderate from 9.1% in 2022 to 6.8% in 2023, we are still facing historical peaks. The high cost of living, rising interest rates and persistent geopolitical uncertainties will continue to weigh on private consumption and investment in many regions of the world, undermining global growth prospects.

Advanced economies are close to recession in 2023

Recession fears have intensified in advanced economies as their growth prospects have steadily deteriorated over the course of 2022. Despite higher expectations in the last months of last year, advanced economies are expected to experience stagnant growth in 2023.

Indeed, the impact of the constant rise in prices and that of borrowing costs will generate additional decreases in the purchasing power of consumers as well as business investments, which will greatly slow down economic activity.

Basic forecasts of real GDP growth 2020-2024 Note

According to Euromonitor International’s basic forecasts for the first quarter

2023, US real GDP growth is expected to decline to 0.2% in 2023 and to 1.4% in 2024. This represents downward revisions of 0.3 and 0.1 percentage points, respectively, compared to the previous quarter’s forecasts. In addition to high inflation, the slowdown in growth in the United States is mainly the result of rapid interest rate increases by the US Federal Reserve aimed at controlling inflation. Their moderating effect on economic activity and private sector confidence will not be fully felt until 2023. An increasingly restrictive monetary policy will eventually weaken the robust labor market and strong consumer spending, and therefore also the main pillars that helped the US economy avoid recession in 2022.

For its part, the Eurozone economy is expected to grow by 0.2% in 2023 and by 1.6% in 2024. Milder than expected temperatures during the autumn and winter have led to lower energy prices and a reduced risk of a serious energy crisis.

Nevertheless, like the United States, the eurozone will be close to recession in 2023 against a backdrop of persistently high inflation levels and continuously rising interest rates. In addition, unlike the United States, the area will face persistent energy supply risks resulting from the war in Ukraine, an uncertainty that significantly affects businesses and consumers.

Mixed outlook for emerging markets

The economic outlook is expected to vary between emerging and developing markets. In China, after the low growth recorded in 2022, the reopening of the country and the end of the zero COVID policy in December 2022 should release pent-up demand and stimulate consumption and growth. However, the short-term outlook could be clouded by a resurgence of COVID-19 which is hampering economic activities. In addition, the weakening of external demand and the persistent problems of the real estate sector are major obstacles to China’s economic recovery in 2023. Thus, Euromonitor’s forecasts for China’s real GDP growth remain unchanged compared to 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 still expected to outperform in 2023, but with a slower pace of growth compared to the previous year, as the decline in demand from the United States and Europe will affect the exports and services of these countries in certain sectors. Likewise, the slowdown in oil demand and the volatility of raw material prices will weigh on the growth prospects of the economies of the Middle East and Africa in 2023-2024.

Finally, in Latin America, economic growth is expected to remain moderate in the main emerging markets such as Brazil and Mexico in the short and medium term, given the tightening of monetary policies and political instability.

Inflation continues to slow down while multiple risks persist

In 2023, global inflation is expected to slow to 6.8% according to forecasts for the first quarter of 2023, after a multi-decade record of 9.1% in 2022. Despite the easing, emerging and developing economies will continue to record very high inflation at 8.1% in 2023 in a context of persistent pressures on energy and food prices.

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

As for the advanced economies, inflation will remain well above the trend at 5.2%, as price pressures shift from energy, food and goods to become increasingly anchored in the service sectors.

Slowing demand and rising interest rates in most of the world’s economies will continue to weaken inflationary pressures during 2023.

However, multiple risks could lead to a resurgence of inflation in the short and medium terms. The immediate risks emanate mainly from new supply disruptions in the context of the war in Ukraine and the reopening of China, which could aggravate a generalized cost of living crisis. In the medium term, the aggravation of geopolitical tensions, the rewiring of global supply chains and the increasingly frequent extreme weather events present considerable inflation risks.