Global Growth: Still Headed Towards a Recession

After a tumultuous year, we anticipate lackluster growth in 2023, followed by differing recovery paths across countries in 2024. Global growth is likely to slow to +1.4% in 2023 and to recover modestly to +2.8% in 2024, with significant divergence across countries. Advanced economies will register a shallow recession of -0.1% in 2023 (after growth of +2.5% in 2022), followed by a rebound to below-potential growth of +1.5% in 2024. Europe will muddle through the ongoing energy crisis (GDP growth at -0.4% in 2023 and +1.0% in 2024), while the US recovery is constrained by a cautious policy mix (GDP growth at -0.3% in 2023 and +1.6% in 2024). Most emerging countries are facing both external and domestic headwinds in 2023 (GDP growth at +3.3%), before a rebound to +4.3% is expected in 2024.

Global trade continues to slow as industrial activity recedes, despite easing supply-side constraints. The context of oversupply in the manufacturing sector and lower demand does not bode well for trade volume, even though supply chains should continue to normalize. We expect global trade in goods and services to grow by only +0.7% in volume terms in 2023, and contract by -1.3% in value terms. A mild recovery could be expected in 2024, with global trade growth reaching +3.6% in volume terms (and a neutral price effect) – i.e. roughly 1pp below the pre-pandemic long-term average.

In Asia-Pacific, we expect economic growth to reach +3.6% in 2023 and +4.5% in 2024 (after +3.2% in 2022), masking different sets of stories across the region.

For China, reopening efforts are coming earlier than previously expected, but the coming months will remain difficult. There is a high probability of negative q/q growth in Q4 2022, with overall growth for 2022 likely at +2.8%. We also expect soft growth in Q1 2023 and full-year growth is likely to reach +4.0% in 2023 and rebound further to +5.2 in 2024. Risks to our 2023 growth forecast are tilted to the upside (and thus 2024 to the downside), depending on the timing and intensity of the post-Covid rebound. We assume a return of the Chinese consumer is on the cards from the second half of 2023, and into 2024 as we expect a full shift in sanitary policies in spring 2023. The real estate sector will remain a structural drag on growth, but a systemic crisis will be avoided. The policy mix should remain accommodative (especially on the fiscal side) until the domestic recovery becomes more sustainable in 2024.

We expect this group of economies (Hong Kong, Singapore, South Korea, Taiwan) as a whole to record another year of slower GDP growth, at +1.7% in 2023 collectively (after +2.3% in 2022 and +5.3% in 2021), before recovering modestly to +2.5% in 2024. Externally, these export-oriented economies are weighed down by slowing global demand – we expect in particular the largest cliff-edge effect to be in cyclical sectors such as construction, consumer goods (electronics, household equipment, etc.) and retail. Domestically, headwinds mainly come from elevated inflation and high funding costs. These different drags could start to bottom out in the latter part of 2023, when we expect global growth to reaccelerate modestly (with the US and Eurozone exiting recessions and the return of the Chinese consumer) and several central banks in the region to find room to start cutting policy rates as the US Federal Reserve pivots. 

We expect GDP growth for ASEAN as a whole to slow to +4.0% in 2023 (after +5.4% in 2022 and +3.2% in 2021), before recovering modestly to +4.6% in 2024. After a year of post-Covid recovery, Southeast Asian economies are also caught up by the negative impact of higher inflation and tightening monetary policies (even though less so than in other regions). On the positive side, inflation seems to have peaked (or near peaking) in most places, in part thanks to energy price relief and normalizing supply chains. In this context, central banks are beginning to slow the pace of rate hikes (which should end by mid-2023), before potentially turning to rate cuts towards 2023-end. Such domestic conditions, along with soft recoveries in developed markets and the return of the Chinese consumer (and tourists) should enable better economic momentums in 2024. In particular, the tourism revival is a reason why Thailand is among the few economies where we didn’t revise growth forecasts on the downside this quarter. Another notable exception is Vietnam, which has proved more competitive than peers and presents among the best medium-term prospects in the region. 

Latest available data on insolvencies show they are on the upside in a majority of economies of the region (India, Taiwan, Singapore and Hong Kong). In China, the upwards trend reversal is only just starting to show. That being said, most in the region continue to experience insolvencies levels that are well below the pre-pandemic normal. Going forward, we expect the normalization to keep going, due to a partial catch-up of pre-Covid and Covid-related zombie firms and, the triple-whammy of lower demand, squeezed corporate margins and deteriorating financing conditions. We continue to expect business insolvencies to rebound by  +19% in 2023 at the global level, after +9% in 2022 and two consecutive years of declines in 2020 and 2021 – meaning that the number of insolvencies in 2023 will be roughly back to the pre-pandemic level. In Asia-Pacific, we expect business insolvencies to increase by +20% in 2023 (after +2% in 2022) – which will bring next year’s number of insolvencies still nearly one-fifth lower than the pre-pandemic level.

 

While our economic outlook may not be the most heartwarming (at least in the short-term), I do hope that you will share a safe and pleasant end-of-the-year season with your friends and families.

Wishing you a happy, healthy and prosperous 2023!