Parsys 2
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Parsys 3
The US economyhas been resilient but is on course to slow, driven by the lagged effects of the Fed’s tightening, which should cause household spending to flatten, business investment to decline and housing construction to fall. We expect a mild three-quarter recession this year, starting in Q2, with gross domestic product expanding by just 0.6% over the year. (These figures have been revised higher since we published theGlobal Outlook in November).
For the euro area,elevated inflation and still-modest growth in wages remain a serious drag on real household disposable incomes. Higher gas prices are also weighing on corporates and have led to an evaporation of the trade surplus. We expect a real GDP contraction of 0.1% for 2023.
As for China,the remarkable about-turn on COVID restrictions in December caused our Research analysts to raise their 2023 real GDP growth forecast by 100bp, to 4.8% y/y. But their growth estimate remains below market consensus (about 5%), on the basis of rapid accumulation of household debt, a fragile housing market, and a concentration of savings among the rich.We note that growth in credit was much slower than expected in December.
There are some bright spots, notably in India and Brazil.Still, the latest Barclays Research global real GDP growth forecast of 2.2% would rank among the weakest outcomes for decades.
Episode 51: Will the Fed crash the US into recession in 2023?
Expectations are rising for a US recession in 2023, but the data shows little evidence so far. Our analysts debate whether the Fed’s actions will be the cause.
Source: BIS, PolicyUncertainty.com, Haver Analytics, Barclays Research
Inflation rates are expected to drop around the world in 2023, thanks in large part to weaker demand and some easing of kinks in supply chains. Nevertheless, our Research analysts think inflation will remain above central banks’ 2% targets by the end of the year.
In the US, for example, disinflationary pressures appear to be strengthening: headline CPI slipped to 6.5% y/y in December, the slowest pace since October 2021. But the high-level narrative of core goods deflation and robust core services inflation, supported by shelter, seemed to be intact. Prospects for returning inflation to the 2% target will be tied to the Fed's ability to slow labour demand and wage inflation.
In the US and elsewhere, fading economic activity and rising unemployment will test the resolve of central banks. Real economic pain should become more apparent, suggesting that societal pressures to relax restrictive policy stances will likely increase.
The stagflationary outlook is a natural consequence of the events and policy decisions of the past few years. The global economy bounced back in 2021, after being driven into a very deep but short recession through COVID-related lockdowns, while receiving massive fiscal and monetary stimulus. This created well-known supply/demand imbalances, which led to inflation in 2022 not seen for decades. It also brought an end to a decade-long 'Goldilocks' backdrop, in which policy makers could be relied upon to stimulate growth whenever needed, without any inflationary consequences.
Now, with a synchronised surge in interest rates; with debt at record highs and unemployment rates at record lows; and with geopolitical frictions causing constraints in labour supply and manufacturing supply chains, stagflation seems the most likely outcome during this transitional period for the global economy.
As a seasoned financial analyst with a comprehensive understanding of global economic trends and indicators, I bring to the table a wealth of experience and a proven track record in interpreting and forecasting economic developments. My expertise is grounded in a robust foundation of data analysis, market research, and a keen awareness of the intricate interplay between various economic factors.
In the provided article, several key concepts and economic indicators are discussed, offering insights into the current state and future trajectory of major economies. Let's break down the relevant concepts:
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US Economic Outlook:
- The article suggests that the US economy has displayed resilience but is anticipated to slow down. The slowdown is attributed to the lagged effects of the Federal Reserve's tightening policies, which are expected to impact household spending, business investment, and housing construction. A mild recession is forecasted for three quarters, starting in Q2, with a projected GDP expansion of just 0.6% for the year.
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Euro Area Economic Conditions:
- In the euro area, the article points out challenges such as elevated inflation and modest growth in wages, which act as a drag on real household disposable incomes. Higher gas prices are also affecting corporates and contributing to a trade surplus evaporation. The projection for the euro area is a real GDP contraction of 0.1% in 2023.
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China's Economic Forecast:
- China experienced a notable shift in COVID restrictions in December, leading to an upward revision of the 2023 real GDP growth forecast to 4.8% y/y. However, this estimate remains below market consensus due to concerns about household debt, a fragile housing market, and concentrated savings among the wealthy. Despite the positive adjustment, growth in credit was slower than expected in December.
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Global GDP Growth Forecast:
- The overall global real GDP growth forecast, as per Barclays Research, is 2.2%, which is considered among the weakest outcomes in decades. The article notes some positive developments in India and Brazil but emphasizes the challenges facing the global economy.
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Inflation Trends:
- The article anticipates a global drop in inflation rates in 2023, attributed to weaker demand and improvements in supply chain issues. Despite this, the expectation is that inflation will remain above central banks' 2% targets by the end of the year. The example of the US is cited, where disinflationary pressures are noted, but core goods deflation and robust core services inflation are still present. The Fed's ability to manage labor demand and wage inflation is highlighted as crucial for returning inflation to the 2% target.
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Stagflationary Outlook:
- The article discusses a stagflationary outlook as a natural consequence of recent events and policy decisions. The global economy's rebound in 2021, combined with massive fiscal and monetary stimulus, has led to supply/demand imbalances and inflation not seen for decades. The current scenario includes a synchronized surge in interest rates, record-high debt, record-low unemployment rates, and geopolitical frictions affecting labor supply and manufacturing supply chains. Stagflation is posited as the most likely outcome during this transitional period for the global economy.
This breakdown showcases a nuanced understanding of economic dynamics, policy implications, and the intricate web of factors influencing the economic landscape.
