Overview

• Banking stress remains an issue in the US with the failure of First Republic Bank in early May. Financial market reaction has been more muted than in March. That said, surveys of loan officers point to an on-going tightening in credit supply conditions in the US and Europe. The same surveys also point to a significant weakening in loan demand.
• Global inflation has slowed in recent months. We estimate global CPI inflation of 7.0% yoy in March 2023, down from a peak of 9.6% yoy last year. This is still too high, and measures of core inflation in advanced economies are proving to be sticky.
• The US, Euro-zone and UK economies all grew in Q1, but at a subdued pace, and we expect Canada and Japan to also record positive growth. However, due to the lagged effects of monetary policy tightening and the tightening in lending standards from the banking issues, we remain bearish on the outlook.
• Business surveys continue to point to relatively robust conditions in emerging markets, particularly in the services sector. Weak global demand for goods (reflecting generally slower growth and the switch to services) is impacting EM and east Asian growth as it is relatively trade dependent, with Taiwan falling into recession.
• We estimate Q1 world GDP growth was 0.9% q/q, up from 0.1% in Q4 2022, with around 40% of this growth coming from China. Growth should slow in Q2, as the boost to China’s growth from the removal of COVID restrictions fades, and also because of weaker advanced economy growth. Challenging this view, the global PMI continued to improve in April signalling some possible near-term upside risk. However, downside risk is coming from still high and sticky core inflation; while we expect the major central bank policy rates are at or near their peak, if inflation does not decline as expected this may push them to move higher.
• For each of 2023 and 2024 we still expect growth of 2.7%. Excluding the global financial crisis and COVID‑19 impacted 2020, this would be the slowest rate of growth since 2001.

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