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In store for the global economy in 2023

In store for the global economy in 2023

With the new year on the horizon, analysts are turning their attention to forecasts for the global economy in 2023. After a rollercoaster trio of years since March 2020, predicting the world’s next moves is no easy task. However, for Morgan Stanley, 2023 will herald tempered inflation and with it, a pause in interest rate rises. 

In addition, the consultancy company forecasts a modest recovery among emerging economies such as Brazil and a contraction in the UK and European economies. The US, however, will “tread water” and experience GDP growth, albeit at lacklustre rates. 

The good news for the global economy in 2023

The Global Macro Economy Outlook 2023 forecasts an end to rising inflation, a feature that has characterised most countries’ economies this year. The report believes that global inflation will peak at the end of this year. 

Calling this “the good news”, Morgan Stanley believes that slowing demand and declining housing prices “will help temper inflation” next year. As a result, major central banks could “pause and assess their recent historic string of rate rises”. 

Read about prime residential prices in Q3 this year

“As consumer goods’ supply chains recover and labour markets see less friction, we could see a sharper and broader fall in inflation," commented Seth B. Carpenter, Chief Global Economist at the company. He believes it "would imply a somewhat easier path for policy and higher growth globally.”

The report’s conclusion is that “the interplay of inflation and central-bank intervention will ultimately shape the story of economic growth for 2023."

Global growth in 2023

The world economy in 2022 has encountered numerous challenges, including burgeoning inflation and excessive post-pandemic consumer demand. Morgan Stanley predicts that these factors will continue "to weigh on growth in 2023”. 

Consequently, global GDP growth is likely to be around 2.2%. The figure “narrowly defies recession”, and is below the 3% predicted for this year. 

Outlook for specific economies 

The report also looks at individual economies and forecasts their performance in 2023. 

US economy in 2023

Overall, the report believes that the US will “narrowly miss a recession”. Specifically, it expects around 0.5% GDP for the country next year within a scenario of “cooling inflation”. It forecasts a curb on interest rate rises with a peak of 4.5 to 4.75% early next year. 

“The U.S. economy should experience a soft landing and a tepid rebound versus the current prevailing view of a hard landing and faster recovery,” said Ellen Zentner, Chief U.S. Economist. 

European and Asian economies in 2023

For the UK and Europe, Morgan Stanley forecasts a contraction next year. Specifically, it expects negative growth in the Eurozone (down 0.2%), while predicting that the UK economy will drop by 1.5%. 

In 2023, Asia will offer “green shoots for growth”, with India a particularly strong economy next year. Predictions for GDP growth for China and India are 5 and 6.2%, respectively.

Emerging economies in 2023

The report believes emerging market economies could reap rewards as the Fed eases interest rate rises. It also points out that Asia isn’t the only part of the world “poised for growth in the year ahead”. As a result, the global economy in 2023 will benefit. 

(Source: Morgan Stanley)

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