February 22, 2023

The Forward View – Global: February 2023

Inflation is slowing but is still yet to be tamed


  • Global inflation data showed the slowing trend in consumer price growth continued in December. That said, while it appears that global price growth may now be past its peaks, inflation in the US, UK and France remained stable in January and, more generally, inflation remains well above targets set by global central banks. This means that there is scope for further policy rate hikes in coming months.
  • It remains to be seen what impact China’s reopening will have on inflationary pressures. While Chinese demand may rise (supported by accumulated savings), this may be offset by the further easing of supply constraints – from the removal of COVID-19 restrictions and the recovery from the rapid spread of the virus in December.
  • Outside the US, economic growth across the major advanced economies (AEs) was subdued in the final quarter of 2022 but the outright declines expected for the UK and Euro-zone were avoided (and we no longer expect the latter to contract in Q1). Business surveys, which trended down through much of 2022, have stabilised with signs of upwards momentum on the services side. While there has been a boost from falling energy prices and the end of China’s zero-COVID policy, the outlook remains weak as monetary policy continues to tighten.
  • Anecdotal evidence suggests China’s rebound appears to be more rapid than we had expected. Following the abandonment of the zero-COVID policy, we had anticipated a disruptive transitional period across most of Q1 2023. Instead, it appears that most of the impact occurred between mid-December and mid-January, with subway passenger movement and traffic congestion pointing to a pickup in activity post the Chinese New Year holidays.
  • Our global forecasts are stronger this month, reflecting an improved short-term outlook for major advanced economies and the faster-than-anticipated recovery in China. That said, the improvement should not be over-stated. Overall, we now forecast the global economy to expand by 2.6% in 2023 (previously 2.3%) – down from 3.4% in 2022. Outside the Global Financial Crisis and COVID-19, this would represent the weakest rate of growth since 2001. Our outlook for 2024 is unchanged at 2.8%. This is below the long run average of 3.4% yoy (recorded between 1980 & 2021).

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