Key themes 2023 – Mild recessions and a cheerless recovery
We anticipate most advanced economies will fall into recession in 2023 and global growth will be weaker than the consensus expectation. In that context, we have identified three themes that we think will dominate the economic outlook and financial markets.
What you will learn:
- Supply shocks will ease but won’t fade completely. Lockdown related supply-chain disruptions show clear signs of abating, which is good news for industry and inflation. But this won’t end supply-side problems and uncertainties. Advanced economies’ relationships with China and Russia will remain strained and may trigger changes in the way firms do business, raising costs and clouding the picture for central banks.
- Inflation will fall sharply but a fast central bank pivot is less likely. We expect inflation to fall back sharply for most economies as weaker commodity prices, slowing growth, and easing supply chain issues feed through to prices. But in the US, where demand factors have played a bigger role, inflation may fall back more slowly. While we expect eurozone inflation to be below the consensus expectation next year, US inflation is more likely to surprise to the upside.
- Recessions will be mild, but the subsequent recoveries disappointing. The key shocks that have taken the wind out of the sails of global economies in 2022 should dissipate next year. But it will take more than negative shocks fading to generate a strong rebound. With China unlikely to act as spender of last resort, prior rate hikes in advanced economies still rippling through the system, and aggressive fiscal loosening off the table, a strong growth rebound seems improbable to us.
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