As the world is gradually recovering from the impact of the COVID-19 pandemic and the Russia-Ukraine war, central banks worldwide are taking measures to reduce inflation by tightening their monetary policies. Along with this, the reopening and rebound of the Chinese economy is expected to resolve supply chain issues. Against this backdrop, GlobalData, a leading data and analytics company, has revised its global economic growth projection upward by 0.5 percentage points to 2.5% in March 2023 over the last update (January 2023).
According to GlobalData’s latest report, “Macroeconomic Outlook Report: Global (Q2 2023 Update),” Asia-Pacific region is expected to be the fastest growing region in 2023, followed by Middle East & Africa, Americas, and Europe. The Asia-Pacific region is forecast to grow at a faster pace of 3.7% in 2023, up from 3.3% in 2022.
On the other hand, the growth rates for the Americas, Middle East & Africa, and Europe are expected to decelerate to 1.1%, 3.2%, and 0.4%, respectively, in 2023 from 2.5%, 4.6%, and 3% in 2022.
Among the G20 nations, major APAC countries including India, China and Indonesia are projected to lead the growth chart with real GDP growth forecast at 5.7%, 5.3% and 4.6%, respectively, in 2023. Meanwhile, more than 25% probability of a recession remains in the EU, Argentina, Russia, and the UK in 2023.
Ramnivas Mundada, Director of Companies and Economic Research at GlobalData, comments: “Business and consumer confidence are gradually improving in 2023, compared to late 2022 due to the gradual receding of inflationary pressure, which has been a major concern for businesses and consumers.
“However, a rapid rise in interest rates and the anticipated slowing of economic activities have contributed to stress in parts of the financial system, thus raising concerns about financial stability. Some financial institutions with business models that relied heavily on the extremely low nominal interest rates of the past years have come under acute stress, as they have proved unprepared or unable to adjust to the fast pace of rate rises.”
In mid-March 2023, two specialized regional banks in the US failed unexpectedly, and the collapse of confidence in Credit Suisse roiled the financial market. Out of top 20 banking stocks that lost their market value in March 2023, 18 banks were from the US. Companies that have high exposure to the US banking industry may face a reduction in business as their clients in the banking industry struggle to navigate the fallout from collapse.
GlobalData expects the central banks to keep the policy rates at higher level until they come down to the target range. Global inflation rate is projected to ease to 5.4% in 2023 from 8.7% in 2022 but is expected to stay above the pre-war level of 4.7% in 2021.
The expected decline in inflation rates is a global trend that cuts across all regions. The Americas, for instance, is projected to experience a drop from 9.9% in 2022 to 8.4% in 2023, while Asia-Pacific is expected to reduce from 7.6% to 5.6%. Europe’s inflation is predicted to decrease from 11% to 6.7%, and the Middle East & Africa is forecasted to decline from 18.9% to 14.7%.
On the external side, global trade dynamics are expected to remain weak in the first half of 2023, due to the elevated inflationary pressure and high borrowing cost, which can limit the demand for goods and services. However, there is a hope for the gradual revival of global demand and easing of supply side constraints, which could help to boost global trade in the second half of 2023.
Mundada concludes: “Despite some positive signs of economic recovery, the global economic outlook remains uncertain, and inflation, although showing some signs of easing, is still projected to remain high and above the targets of most central banks in 2023. As a result, greater international cooperation and diversification of export destinations are the need of the hour to help mitigate some of the challenges facing the global economy.”
