The global economic outlook for 2023 is increasingly gloomy | Bot To News

The outlook for the global economy heading into 2023 has worsened, according to a number of recent analyses, as the ongoing war in Ukraine continues to weigh on trade, particularly in Europe, and as markets await a more complete reopening of China’s economy after months of turmoil due to the COVID-19 lockdown.

In the United States, signs of a tightening labor market and slowing business activity have fueled fears of a recession. Globally, inflation increased and business activity, particularly in the euro area and the UK, continued to contract.

In an analysis published Thursday, the Institute for International Finance forecast a global economic growth rate of just 1.2 percent in 2023, which is on par with 2009, when the world was just beginning to emerge from the financial crisis.

The Organization for Economic Co-operation and Development (OECD) also agrees with the pessimistic forecast. In a report released this week, the organization’s interim chief economist, Alvaro Santos Pereira, wrote: “We are currently facing a very difficult economic outlook. Our core scenario is not a global recession, but a significant slowdown in global economic growth in 2023, as well as still high, albeit declining, inflation in many countries.”

US interest rates

In the US, inflation and the Federal Reserve’s efforts to combat it have been dominant factors in most analyzes of the current and future state of the economy.

The US is facing its highest inflation rate in 40 years, and prices have started to rise significantly in mid-2021. By the start of 2022, annual interest rates were over 6%, and although they fluctuated a bit, they touched a high of 6.6% in October.

Beginning in March, the central bank’s Federal Open Market Committee (FOMC), which sets key interest rates, made a dramatic series of hikes, raising the benchmark interest rate from 0.0% to 0.25% to today between 3.75% and 4.0%.

The idea behind the Fed’s moves is to change consumer incentives. By making savings rates more attractive and borrowing rates less, the central bank aims to reduce demand and thereby slow the rate of price growth.

In general, the Fed considers an annual inflation rate of 2% to be healthy and considers this to be its long-term goal.

Avoiding recession

The Fed’s goal is to control inflation without plunging the economy into a damaging recession. And while many economic signs suggest that efforts to slow demand may be working, the threat of a recession still looms.

Evidence released this week showed that business activity in the US contracted for the fifth consecutive month as companies responded to reduced consumer demand. Although the economy has continued to add jobs in recent months, claims for jobless benefits are rising, pointing to a possible softening of the labor market.

FILE - Signs for a job fair are seen on Fifth Avenue in Manhattan, New York, on September 3, 2021.

FILE – Signs for a job fair are seen on Fifth Avenue in Manhattan, New York, on September 3, 2021.

The Federal Reserve released the minutes of the FOMC meeting in early November this week. The minutes revealed a pessimistic view of the US economy in the coming year among central bank economists.

Among their findings was that “they saw the possibility of the economy going into recession sometime in the next year as almost as likely as the starting point.”

A “substantial majority” of the committee’s voting members have indicated they believe it is time to slow the rate of rate hikes, suggesting the FOMC will back away from its recent 0.75% hikes when it meets in December. and may have raised interest rates by as little as 0.5%.

A global struggle

Internationally, governments face a difficult challenge: supporting their citizens at a time when prices are rising dramatically, especially for necessities such as food and fuel, which have been hit hard by the war in Ukraine.

In a report this week, the International Monetary Fund warned of the difficult balance governments must manage, saying: “With many people still struggling, governments should continue to prioritize helping the most vulnerable to cope with rising food bills and energy and cover other costs. — but governments should also avoid adding to aggregate demand, which would risk raising inflation. In many developed and emerging economies, fiscal restraint can lower inflation while reducing debt.”

According to the Institute of International Finance (IIF), global growth will be low but net positive in 2023, with certain areas facing declines. Chief among them is Europe, where the IIF forecasts a 2.0 percent fall in cumulative GDP.

Bright spots

To the extent that there are bright spots in the global economy in 2023, they are in areas such as Latin America and China.

For many Latin American countries, where exports of raw materials, including timber, ore and other important economic inputs drive many economies, global inflation has proven beneficial as prices for these goods have risen. The IIF report projects GDP growth of 1.2 percent across the region, despite much of the rest of the world seeing an economic contraction.

China has suffered economic damage as a result of President Xi Jinping’s “zero COVID” strategy, which has resulted in large-scale lockdowns of entire cities and regions, causing severe disruption to economic activity. The IFF and other organizations expect a significant easing of Chinese policy next year, leading to economic growth of as much as 2.0 percent as the Chinese economy tries to revive.

UK to suffer

With the exception of Russia, which is still reeling from crippling sanctions related to its invasion of Ukraine, the UK faces the bleakest outlook for the coming year of any of the world’s major economies.

With inflation well ahead of inflation in other countries, annual price increases are expected to touch 10% by the end of the year, before slowly easing in 2023.

Among the G-7 countries, the UK is the only one in which economic output has not returned to pre-pandemic levels and is forecast to contract further. The OECD predicts that the UK economy will shrink by 0.3% in 2023 and grow by just 0.2% in 2024.

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