December 20, 2023

The Forward View – Global: December 2023

Weaker inflation boosts rate cut hopes


  • For much of 2023, inflation in advanced economies has persisted well above central bank targets. Rapid inflation in services and tight labour markets led to further increases in policy rates along with expectations that these rates would remain at comparatively high levels for a prolonged period.
  • However, the more recent retreat in inflation (down to 3.5% yoy for advanced economies in October) and commentary from central bankers has substantially shifted expectations. At the time of writing, five policy rate cuts by both the US Fed and European Central Bank were fully priced for 2024, with a high probability of a sixth.
  • Revisions to major AE growth widened the gap between strength in the US and weakness in other economies. That said, the gap is not expected to continue, as the US slows from Q4 onwards.
  • Growth in India and Russia was stronger than expected in Q3 – albeit there was some scepticism around both outcomes, given anomalies in India’s disaggregated data and the propaganda value of Russia’s outcome.
  • Reflecting the stronger than anticipated growth in India, we have revised up our expectation for global economic growth to 3.1% in 2023 (from 3.0%). We continue to forecast a slowdown in 2024 to 2.7% (up from 2.6% previously). Outside the extreme outliers of the global financial crisis and the initial wave of COVID-19, this would be the weakest rate of growth since 2001. We expect a modest recovery to 3.0% in 2025, however our whole outlook sees growth below its long-term average of 3.4%.
  • The path of inflation remains the key uncertainty to our outlook – and with it the timing and scale of the eventual easing of monetary policy. Beyond this, geopolitical factors could continue to influence economic activity – including conflict in Russia-Ukraine and the Middle East, tensions between the US and China, and uncertainty around the outcome of the 2024 US Presidential Election.

For further details, please see The Forward View Global (December 2023)