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Global Economic Outlook: Q3 2023

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Resilient consumer spending on services, moderating inflation and declining immediate risk in the banking sector have fuelled some upturns for the global economic outlook. The improvements remain fragile, however, with China’s slower-than-expected economic recovery, rather sticky core inflation, high interest rates and geopolitical uncertainties still weighing on economic activities, businesses and consumer confidence.

In Euromonitor International’s Q3 2023 baseline forecast, the 2023 global real GDP growth forecast is revised marginally upward to 2.6%. Global economic growth is expected to accelerate in 2024 but remain subdued at 2.9%, mainly as result of the lagged effects of higher borrowing costs. Global consumer price inflation is expected to decelerate to 7.0% in 2023 and further to 4.7% in 2024, on the back of slowing demand, tightened financial conditions and lower commodity prices.

Advanced economies show resilience, though still heading for a sharp slowdown

Real GDP growth projections for 2023 were upgraded for most advanced economies in Euromonitor International’s Q3 2023 baseline forecasts, except for Germany. Although a rapidly tightening monetary policy has weighed on the housing, financial and manufacturing sectors, the weakness is offset by strength in the services sector.GEF Q3 2023 Chart 1.svgThe US economy continues to show resilience going into Q3 2023, supported by solid consumer spending amid a strong labour market and uptick in government spending.

The likelihood of a soft landing for the US has increased, but the economy is still expected to weaken significantly in 2023 and 2024, with real GDP growth rate being estimated at 1.2% and 0.8%, respectively

Source: Euromonitor International

This outlook is associated with numerous factors, including lingering inflation, high interest rates and depleted excess savings accumulated during the pandemic.

The eurozone faces a subdued growth environment, with inflation weighing on real incomes, high interest rates increasingly feeding through the broader economy, and weak external demand hurting the region’s manufacturing sector. Real GDP growth is projected to fall sharply to 0.6% in 2023, before it improves marginally to 1.2% in 2024. Germany – the region’s largest manufacturing sector and economy – is expected to contract by 0.2% in 2023 (a downward revision of 0.3 percentage points from the previous forecast) before it returns to growth in 2024. On the upside, a robust labour market, and a stronger services and tourism sector continue to drive the eurozone’s economic resilience.

China’s recovery loses momentum, while emerging Asia remains an outperformer

Emerging and developing economies remain the growth engine of the global economy in 2023-2024, driven by rebounding domestic activity, increased investment and tourism, among other factors. Nevertheless, the outlook is mixed across markets and regions.

China’s economy is predicted to expand by 5.3% in real terms in 2023 and 4.8% in 2024, while its growth momentum is slowing as both domestic and foreign demand falter

Source: Euromonitor International

China’s official manufacturing Purchasing Managers’ Index (PMI) has stayed below the 50-point threshold since April 2023, indicating contraction in factory activities, as demand for Chinese exports weakens. The ongoing real estate crisis and a looming deflation risk also weigh on the outlook for China, although an expected fiscal stimulus should help boost the economy.

Meanwhile, several emerging Asian economies continue to post solid growth in 2023, such as India (5.8%), the Philippines (5.6%) and Vietnam (5.5%), as they benefit from solid consumption and investment trends. The Gulf economies have also weathered the uncertain global economic environment relatively well. On the other hand, economic slowdown is more visible in Latin America, with the likes of Mexico and Brazil facing the pressures of weakening demand and lower commodity prices.

Inflation eases at different speeds across economies

Global consumer price inflation is expected to ease significantly from its peak in 2022, but will remain elevated at 7.0% in 2023 and 4.7% in 2024.

Similar to global growth, there are diverging inflation trends amid the global deceleration of inflation

Source: Euromonitor International

For instance, in June 2023, the US saw inflation fall to 3.0%, nearer to the central bank’s target of 2.0%, while inflation in the UK remained persistently high at 7.3%. With commodity price shocks in food and energy resulting from the initial outbreak of the war in Ukraine further abating, inflation is now driven mainly by factors such as wage growth amid a tight labour market and a surge in services demand, which are stronger in some markets than others.GEF Q3 2023 Chart 2 FINAL.svg

Global fragmentation can cause a long-term drag on the world economy

Despite some recent optimism witnessed in the global economy, many structural factors that have arisen over the last few years are still impacting the global growth outlook. The war in Ukraine, geopolitical tensions, demographic shifts, high debts, climate change and the rise of commodity and energy pressures are some of the most persistent issues. As these risks linger, the global economy continues to face various plausible scenarios, as highlighted in the chart below.GEF Q3 2023 Chart 3.svg

Global Fragmentation is a new global scenario being introduced in Euromonitor International’s Q3 2023 forecasts. The scenario captures the risk of intensified geopolitical tensions globally that could lead to economies dividing into multiple blocs and a permanent rise in trading costs. Under this scenario, trade-dependent economies will be hit the hardest in near term, while in the medium and long term, most markets, and thus the global economy, will face slower growth potential and greater volatility in prices.

Learn more about the global economic outlook in our Q3 2023 report extract. You can get an in-depth look at the impacts of different macroeconomic scenarios in our full report, Global Economic Forecasts: Q3 2023.

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