The global economy continues to be on course of a sharp slowdown, with worsening outlook for the rest of 2022 and below-trend growth forecast for 2023. A looming energy crisis in Europe, surging cost of living, a sharp tightening of global financial conditions, and slowdown in China are major factors driving the dimmed growth outlook for the world. As more economies could fall into recession in 2023, the year ahead will be challenging for businesses and consumers worldwide.
Euromonitor International’s baseline economic forecasts were downgraded further in Q4 2022. Global real GDP growth is expected to decline from 6.2% in 2021 to 2.9% in 2022 and 2.6% in 2023, 0.1 and 0.3 percentage points lower than our predictions made in Q3 2022 respectively. Global inflation would peak at 9.0% in 2022 before it recedes somewhat in 2023.
Economic headwinds deepen in key economies
Economic uncertainties and risks have increased, taking toll on the world growth prospects. The ongoing war in Ukraine continues to cause gas prices soaring and trigger an energy crisis in Europe. Persistently high and broader-based inflation has prompted central banks around the world to hasten interest rate hikes. The COVID-19 pandemic lingers in China, resulting in repeated lockdowns given the country’s strict policy.
In Euromonitor International’s Q4 2022 baseline forecasts, US real GDP growth rate is predicted to decline to 1.7% in 2022 and 0.8% in 2023. This represents a 0.8 and 0.5 percentage points downward revision compared to the previous quarter’s forecasts respectively as negative growth drivers are dominant. The US Federal Reserve’s more hawkish monetary policy would help to tame inflation, but also weigh on investment and economic activity. Exports are expected to lose steam amid weakening external demand. On the upside, US retail sales could be supported by a so far resilient labour market and improved consumer confidence as inflation slightly dropped during the summer.
As winter is approaching, Europe is facing the risks of energy shortages, while surging prices are hitting manufacturers and households hard. Being coupled with a deteriorating business and consumer confidence, rising interest rates and lower global export demand, the Eurozone economy is now expected to grow by 2.6% in 2022 and slow down significantly to 0.6% in 2023. Germany is forecast to enter a recession in the coming quarters. Meanwhile, rebounded tourism drives a stronger 2022 growth forecasts for Greece and Portugal.
In China, real GDP growth forecasts for 2022 were revised further downward on repeated COVID-19 lockdowns and ongoing property sector market turmoil. China’s official manufacturing purchasing managers index started to improve in September 2022 to reach 50.1, just slightly above the 50-mark that indicates a pickup in activity, but weakening demand from the US and Europe would weigh on growth going forward.
The world’s second largest economy is forecast to grow by 3.6% in 2022 and accelerate to around 4.9% in 2023.
Emerging markets under pressure, but there are some bright spots
The current global economic environment with tightening global financial conditions, a strong dollar, soaring food and energy prices and weakening global demand pose challenges to many emerging and developing economies that are relatively dependent on foreign finance, exports of goods, or imports of food and energy. Developing and emerging economy as a whole are forecast to see significantly below-trend growth rates in both 2022 and 2023.
Nevertheless, there are some emerging economies that stand out with strong performance in the short and medium term. These include some Gulf economies that are benefiting from energy exports and some Southeast Asian economies (eg Vietnam, the Philippines and Indonesia) which are recovering strongly from the pandemic. India is also expected to record a strong growth of 7.3% in 2022 and 6.1% in 2023, on the back of robust investment and strong manufacturing and services sector.
Inflation would peak, upside risks remain
With some price pressures remaining stubbornly high during Q3 2022, inflation forecasts were revised upward for most key countries in Euromonitor International’s Q4 2022 baseline scenario. Consumer price inflation is now expected to surpass 10.0% in emerging and developing markets and 7.5% in advanced economies this year.
Note: (1) Inflation refers to consumer price inflation measured by consumer price index (CPI) (2) Data from 2022 are forecasts, updated on 5 October 2022 (3) Regional real GDP growth calculated using PPP weights.
What can we expect for 2023?
Throughout 2023, inflation is expected to recede gradually in most economies as tightened monetary policy takes effect and slower economic growth dampens demand. However, it would stay notably above trend at around 3.8% in matured economies and 7.3% in emerging and developing countries. Russia’s invasion of Ukraine, China’s persisting zero-COVD policy, labour market tightness and extreme weather conditions continue to represent upside risks to global inflation in the short and medium term. A cost of living crisis, being coupled with higher recession risk, would be the major concerns for businesses and consumers in 2023.
For more in-depth analysis and data on how the global economy will look in 2023, click here.