October 18, 2023

The Forward View – Global: October 2023

Inflation yet to be defeated – policy rates could stay high for longer


  • Global inflation again picked up in August, particularly in emerging market (EM) economies. A key contributor to recent inflation trends has been energy prices, including a lift in oil prices since June.
  • Against a backdrop of still high inflation, and with activity and labour markets holding up better than expected, expectations around central bank policy rates have shifted. Rates are generally expected to stay at around current levels for longer in the major advanced economies (AEs). This has contributed to a tightening in financial conditions with equity markets weakening since mid-September, while bond yields have moved higher.
  • Growth across the major AEs appears to have diverged significantly in Q3 2023, with it set to be strong in the US but weak (if not negative) elsewhere. The strength of the US economy has seen major advanced economy growth hold up so far this year. However, we expect it to ease from here, as the full impact of restrictive monetary policy settings comes through and given somewhat tighter fiscal policy settings.
  • EM business surveys were somewhat softer in September, continuing the downwards trend in the EM composite PMI evident since May 2023. EM Industrial production growth has been relatively strong in recent months. However, with export volumes weakening, and with advanced economy growth likely to slow, it is hard to see this being sustained.
  • Our forecasts for global growth in 2023 and 2024 are unchanged at 3.0% and 2.6% respectively, although our forecast for 2025 has been revised down slight to 3.0% (from 3.1% previously). Growth at these rates would be below the long-term average of 3.4% (recorded between 1980 and 2022).
  • We still believe that the risks around our forecasts remain balanced, with the path of inflation (and implications for monetary policy) a key uncertainty. Recent developments in the Middle East highlight that geo-politics remains a key source of risk.

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