In our baseline scenario, global growth will continue to slow in 2023, reflecting a continuation of the themes that dominated 2022. Inflation has moderated but is still running at elevated levels, significantly eroding real disposable incomes. More importantly, the sharp tightening of monetary policy that major central banks (the Federal Reserve notably) implemented in 2022 will pass through to the real economy over 2023. Furthermore, the monetary policy stance is likely to remain restrictive for some time, as inflation is likely to remain above target in 2023.
In our baseline scenario, global growth will slow to about 2.5% in 2023, from just below 3% in 2022 and well below the trend prevailing in the three decades before the Covid recession (~3.5%). That would entail a significant slowdown in major advanced economies including a short and mild recessions in the US. Meanwhile, the rebound in China’s growth following the decision to rapidly exit its zero-Covid policy in late-2022 is unlikely to significantly lift global growth via indirect effects.
- Recession risks
- Central bank convergence
- The wider cost of carbon
- Our macro outlook with a look ahead to Q2 2023.