Global Economic Prospects 2023
Understanding and highlighting key trends to benchmark and assess global growth potential and global economic prospects for 2023
Summary
- Global growth is expected to decelerate sharply in 2023 to 1.7%, the third weakest pace in nearly three decades after the recessions caused by the pandemic and the global financial crisis.
- Further negative shocks could push the global economy into recession.
- The US, euro area, and China are undergoing a period of pronounced weakness, and the resulting spillovers are exacerbating other headwinds faced by emerging market and developing economies (EMDEs).
- Due to synchronous policy tightening aimed at containing high inflation, worsening financial conditions, and continued disruptions from Russia’s invasion of Ukraine.
- The combination of slow growth, tightening financial conditions, and heavy indebtedness is likely to weaken investment and trigger corporate defaults.
- Urgent global efforts are needed to mitigate the risks of global recession and debt distress in EMDEs.
- National policymakers should ensure that any fiscal support is focused on vulnerable groups, inflation expectations remain well anchored, and financial systems continue to be resilient.
- Policies are needed to support a major increase in EMDE investment, which will require new financing from the international community and the repurposing of existing spending, such as inefficient agricultural and fuel subsidies.
Global Outlook
- Global growth has been hampered to 1.7 per cent, which is the third slowest rate in over three decades. This is due to the epidemic and global financial crisis.
- Global intervention is necessary to mitigate the global recession and the suffering of Emerging Market and Developing Economy
- The global economy is in risk due to higher inflation, tighter policy, financial stress, major economic instability, or geopolitical tensions.
- Emerging markets and developing economies are struggling due to the weakness of major economies like the US, the eurozone, and China. This may lead to investment and corporate defaults because of slow development, tightening financial circumstances, and heavy debt.
- Synchronized policy tightening was implemented to control excessive inflation, worsening financial conditions, and the Russian Federation’s invasion of Ukraine. This reduced global growth by 1.3 percentage points.
- National policymakers must target budgetary support to vulnerable populations, anchor inflation expectations, and protect financial institutions due to limited policy headroom.
- Policies must also boost EMDE investment to offset the long-term growth slowdown caused by the epidemic, the invasion of Ukraine, and the rapid tightening of global monetary policy.
- Requirement for new international investment and repurposing obsolete farm and petroleum subsidies.
Slowing Growth in 2023
High Demand, Supply Shortages & Dropping prices
Global Analysis
The world’s major economies are predicted to grow significantly below average. The global recessions brought on by the pandemic and the global financial crisis are projected to cause the third poorest growth in nearly three decades in 2023.
Forecasts for inflation based on models and surveys both indicate that the core and non-core components of the global CPI inflation peaked in late 2022 and will progressively slow as activity weakens, and the cost of numerous commodities levels off.
While still higher above the average of 2015–19 of 2.3 per cent, inflation is predicted to decrease from 7.6 per cent in 2022 to 5.2 per cent in 2023 and 3.2 per cent in 2024.
Inflation around the globe for the short term is predicted to be high due to various reasons like an invasion, and global imbalance in the supply chain market.
To combat inflation, major economies are raising interest rates. It is predicted that interest rates will rise in the short term, as shown in the figure.
Output Outlook
EMDE regions face numerous spillovers from the darkening global economic outlook, along with weakening domestic conditions. The forecast for growth in 2023 and 2024 combined has been downgraded for every EMDE region since June.
Key Challenges
Impact of Interest Rate Hike
Macroeconomic authorities must avoid increasing policy uncertainty, which could put additional pressure on global financial markets already under pressure from rising borrowing costs and generate additional negative spill overs to growth.
Food inflation
Food price inflation has risen significantly across all EMDE regions (figure). Rising food prices have adversely affected food insecurity and increased the number of people suffering from hunger.
Global Economic Prospects 2023 - Ruskin Felix Consulting LLC
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