World gross domestic product (GDP) forecasts for 2023 have been revised down again as central banks intensify their fight against inflation, as per Fitch Ratings. Global GDP is expected to grow by 1.4 per cent in 2023, revised down from 1.7 per cent in the September 2022 forecast.
China 2023 growth forecast has been cut to 4.1 per cent from 4.5 per cent, while the 2022 growth forecast for the country remains at 2.8 per cent as the surge in COVID-19 cases weighs on activity in the near term, according to the latest Global Economic Outlook (GEO) by Fitch Ratings.
China’s economic slowdown has eased pressure on global commodity prices, but the country is a huge net supplier of goods and pandemic-related disruptions to exports could hit global manufacturing supply chains. However, the recent easing in global supply-chain tensions could provide a bigger boost to world GDP than anticipated.
The projection for eurozone 2023 growth has been revised slightly up to 0.2 per cent, from -0.1 per cent, as the European gas crisis has eased a little, but sharper European Central Bank (ECB) rate rises will weigh on demand.
“Taming inflation is proving to be harder than expected as price pressures broaden and become more entrenched. Central bankers are having to take the gloves off. That won’t be good for growth,” said Brian Coulton, chief economist.
The risk of European natural gas shortages and rationing this winter has receded as liquefied natural gas (LNG) imports have surged, and gas consumption has fallen. But the crisis is far from over and high wholesale gas prices continue to weigh heavily on firms’ costs and household budgets.
Inflation has exceeded forecasts—recently hitting 11 per cent in the eurozone and UK—and core inflation is rising. Increasing services inflation is offsetting the benefits of easing supply-chain pressures.
The Fed, ECB, and Bank of England (BOE) have recently been raising rates in outsized moves. Fitch’s latest forecasts for the peak in Fed rates at 5 per cent and ECB at 3 per cent have been revised up by 100bp since September. The latest 4.75 per cent peak forecast for the BOE has been revised up by 150bp since the previous GEO. A pivot to rate cuts is not anticipated until 2024.
Recessions are anticipated in the eurozone and UK starting in late 2022 and in the US in the second quarter of 2023 (2Q23) and 3Q23. Unemployment is likely to rise to above 5 per cent in the US and UK in 2023.
The forecast for US 2023 growth has been lowered to 0.2 per cent, from 0.5 per cent, as the pace of monetary policy tightening increases.