March 22, 2023

The Forward View – Global: March 2023

Bounce in Q1 2023; but bank stress highlights weaker outlook


  • Global central banks find themselves caught between competing forces, namely persistent high inflation (despite steep policy rate increases in much of the world in 2022) and banking sector instability in both the United States and Europe.
  • There has been some improvement in advanced economy business surveys early in 2023, and we have revised up our expectations for US Q1 GDP growth, highlighting the resilience of advanced economy (AE) growth. At the same time, a boost to the global economy is evident from China’s abandonment of its zero-COVID policies.
  • Stress in the US and European banking systems emerged this month. Authorities moved swiftly to limit the fall-out, including through emergency lending programmes. Even with these steps, bank share prices, bond yields and commodity prices have seen large falls, while market volatility has increased.
  • Overall, the banking issues mean that there has been a tightening in financial conditions. There may be further fall out from banks tightening lending standards. While central banks will utilise other tools to directly address financial stability concerns, the tighter financial conditions mean there is less need for them to increase rates – as a result, market expectations of future policy rates have come in (with a lower peak and earlier rate cuts now expected).
  • We have been expecting growth to slow materially this year, and the banking developments reinforce this view, even though we assume authorities will be able to contain the problem and that the level of stress will subside from here. With AE labour markets still very tight and only slow progress being made in reducing core inflation, if past rate increases (and now banking stress) doesn’t do the job, central banks will likely force the issue through further tightening.
  • Our global forecasts are little changed this month. While we have revised up our 2023 forecast for US growth, we still only expect global growth of 2.6%, while we have marked down slightly our expectation for growth in 2024 to 2.7% (From 2.8%).

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

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