What's on the horizon for the global economy?
Our weekly updated overview highlights the key releases of global economic market data from around the globe and provides an economic outlook for 2023 by region.
- Our Week Ahead podcast explores the main themes that will drive global markets over the coming week
- Our Global Economic Markets Data Calendar shows upcoming events happening over the week
- We provide an outlook overview region by region
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Our view in a nutshell
Japan
- Japan should remain on a recovery path, driven by consumption and inbound tourism in 2023 and goods exports and capex in 2024.
- While core CPI inflation (less fresh food) will likely decline, it should gradually become stickier.
- The BOJ will likely tweak YCC in June 2023 or after with June or July being the most likely to enhance the sustainability of the policy.
- Assuming continuation of recovery and wage hikes in the 24 shunto, the BOJ will abandon NIRP and YCC in H1 24 or after.
Asia
- We expect weaker growth in Q2 2023, due to a deeper export and industrial downturn and an inventory destocking cycle.
- Our base case assumes a better H2 for exports, reflecting improved tech cycle and some spillover effects from better China growth.
- We expect investment and consumption demand to weaken on lagged monetary policy effects, uncertainty and US recession spillovers.
- A turn in the tech cycle may improve the outlook for Northeast Asia, but we see India and ASEAN as the medium-term champions.
- Faster disinflation is still likely from Q2 2023, amid low wages and aided by lower commodity prices and weak growth.
- With the rate hike cycle largely over (except BOT and RBA), we expect central banks to pause for now, with easing from late-2023.
- Korea: Falling house prices will likely push the economy into a recession, leading the BOK to start easing in August (75bp cuts in 2023).
- India: As growth and inflation moderate, we expect an extended policy pause followed by 50bp of rate cuts to 6.00% by end-2023.
- Indonesia: With weakening terms of trade, small twin deficits should return but still look relatively manageable.
- Australia: We expect a slide towards recession, as rate hikes bite. As inflation cools, we forecast rate cuts in Q1 2024.
China
- We cut our growth forecasts amid rising evidence that the post-Covid recovery has been rapidly losing steam.
- We believe sequential growth has already peaked in Q1 and could drop significantly in Q2.
- The property sector recovery seems to have stalled, while exports still face strong headwinds.
- Given weak growth and inflation, we expect the PBoC to cut benchmark lending rates in mid-June.
- That said, Beijing still has no appetite to launch a massive stimulus as it appears to be prioritizing national security over growth.
United States
- A recession is likely to begin Q3 2023 due to the lagged impact of cumulative monetary policy tightening and headwinds to credit.
- The Fed is signaling a “hawkish pause” in June but emphasizing optionality, though we think the terminal rate has been reached.
- The labor market should begin weakening in Q3 2023, with a 5.4% unemployment rate by end-2024.
- Inflation should moderate over 2023, with risks balanced given elevated wage inflation and headwinds to bank lending.
- The x-date when the US Treasury can no longer meet obligations may fall as soon as next week, adding significant uncertainty.
Euro Area
- Euro area activity has been more resilient than expected, so we no longer forecast a recession, but expect a fall in consumption.
- While euro area inflation is likely to fall sharply in 2023, it should be well-above target for some time, and notably core inflation.
- We expect two 25bp hikes in June and July, bringing the peak depo rate to a 3.75% peak, with cuts only from Q4 2024.
- The ECB announced full APP portfolio redemption roll-off from July 2023, after an average of €15bn per month from March to June 2023.
United Kingdom
- UK activity, too, has proved more resilient than expected, and likewise we have removed our recession call.
- Fiscal support and lower energy prices should help cut inflation this year, though not back to target until 2024.
- We expect three 25bp hikes by the BoE in June, August, and September, with a terminal rate of 5.25%. We don’t see cuts until H2 2024.
- During 2023, we expect the BoE to allow c. £35bn of its balance sheet to roll-off, and for it to actively sell £40bn of gilts.
For more information read our weekly report here.
Contributor
Aichi Amemiya
Senior US Economist
George Buckley
Chief UK & Euro Area Economist
Ting Lu
Chief China Economist
Kyohei Morita
Chief Economist, Japan
Rob Subbaraman
Head of Global Macro Research
Sonal Varma
Chief Economist, India and Asia ex-Japan
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