December 15, 2022

The Forward View – Global: December 2022

With inflation still high, policy rate hikes to slow growth in ‘23


  • Global inflation data to October only point to a marginal easing in consumer price inflation, which remains high at 8.8% yoy. However, US CPI inflation again showed signs of easing in November, producer price inflation has been gradually falling since April and global commodity price indices have been trending lower since peaking in June.
  • The major central banks continue to lift policy rates, highlighted by the US Federal Reserve lifting rates by 50bp this week with the European Central Bank and Bank of England expected to shortly follow suit, with further rate increases into 2023 expected. That said, government bond yields have recently moved lower and equity markets rallied. While this represents some easing in financial conditions, they have still tightened considerably over 2022 and there are signs bank lending standards are tightening.
  • There were mixed results across the major AEs for Q3 GDP, including falls in the UK and Japan, but business surveys point to weakening conditions. UK GDP fell in Q3 and Euro-zone GDP is on the cusp of contracting in Q4, and we expect the US (in 2023), UK and Euro-zone to go into recession due to tight monetary policy and the energy supply shock.
  • Business surveys suggest that overall conditions in emerging markets continued to deteriorate in November. This includes in the services sector where China was the key driver reflecting public health restrictions imposed in response to the latest COVID-19 wave. China’s third major wave of COVID-19 has triggered various restrictions in many cities, which will negatively impact China’s growth this quarter. However, it appears that China started to transition away from the strict zero-COVID health policies in early December. As a result, we have lowered our China GDP forecast for 2022 to 3.1% (3.4% previously), but expect higher growth in 2023 (5.2%, from 5.0% previously).
  • Our global forecast is little changed this month, with a substantial slowing in growth anticipated in 2023 – down to 2.3% (previously 2.2%) – before a modest recovery to 2.8% in 2024. These rates of growth are well below the long-run average.

For further details, please see The Forward View Global (December 2022)