Global Growth Set for Sharp Decline in 2023

The global economy is weakening rapidly, with war, inflation, monetary tightening, extreme climate events, and the aftermath of COVID-19 all setting the stage for a substantial slowdown in growth for 2023. While a global recession may be avoided in the year ahead, the longer-term outlook signals a prolonged period of disruptions and uncertainties for businesses—but also new opportunities as the decade proceeds.

According to The Conference Board Global Economic Outlook 2023, global GDP is now likely to grow just 3.2% in 2022, before growth slows further to 2.1% in 2023. Growth is forecasted to recover to 2.6% in the years 2024-29, well below the pre-pandemic (2011-19) trend of 3.3%.

“After a strong pandemic rebound in 2021, the global economy is poised for a year of anemic growth—at best—in 2023,” said Dana Peterson, Chief Economist of The Conference Board. “In the US, aggressive monetary tightening appears certain to produce a recession over the next several quarters, with zero growth likely for 2023 as a whole. While a historic combination of crises is driving up recession risks worldwide, it’s also important not to lose sight of the longer trend. Beyond 2023, we expect demographic factors to produce slower trend growth than the 2010s, with emerging economies poised to drive an even larger proportion of global growth.”

Added economist Klaas de Vries: “Europe is the epicenter of economic concerns entering 2023, amid a looming energy crisis and a war in Ukraine with no end in sight. Even if outages and rationing are avoided, the surge in natural gas prices will leave a deeper recession than we expect in the US. For the most exposed economies, this will mean negative GDP growth for the whole of 2023—including Germany and UK, where we expect contractions of −0.6%.”

Key insights and forecasts:

After a rapid recovery in 2021, the global economy is set to see a severe slowdown in growth for 2022 and 2023—with a global recession possible, though not yet likely, in the year ahead.

• Recessions are now likely in the US and Europe. A US recession is likely to be induced by aggressive monetary policy tightening in response to elevated inflation, while recession in Europe probably will reflect surging energy prices linked to shortages of natural gas from Russia and rationing of available supplies.
• China may escape recession but will experience weak growth in 2022 due to repeated lockdowns, a housing correction, and weakening external demand from the US, Europe, and other trading partners for their products.
• Currently, a global recession is not our base case, but the world will probably experience notably below-trend growth of 2.1% in 2023. These negative developments notwithstanding, a global recession may be avoided—however, the occurrence of one extreme event, or even a combination of several smaller unfavorable events, could thrust the world back into recession.
• 2023 Growth Forecasts (see complete table at end of release):
  • US: 0.0%
  • Europe: +0.1%
    • Euro Area: +0.2%
    • Germany: −0.6%
    • UK:  −0.6%
  • Japan: +1.3%
  • China: +5.3%
  • India: +4.4%

Beyond 2023, global growth is likely to fall below the prepandemic trend.

• Annual global growth is projected to average 2.6% across both the 2024-2029 and 2030-2035 timeframes—down from 3.3% in 2011–2019.
• This will be driven by negative demographic forces across many mature and large emerging market economies, and the dampening impact of these aging populations on growth in the supply of labor and capital.
• As quantitative drivers of growth, such as capital and labor, are slowing, productivity increases will become more important drivers of output and revenue growth. Technological development and adoption of new technologies, especially automation, have accelerated in recent years, and business should be better placed than before to reap the benefits.
• As investment opportunities are becoming more limited in mature economies, a business focus on emerging economies can be a potential growth strategy. This is due to increasing amounts of spending on goods and services associated with expanding middle classes in these economies and surpluses of young and educated workers.
  • Sub-Saharan African economies and emerging Asian economies seem best placed to continue to outperform the global average pace of growth. However, increasing geopolitical tensions and reversal of globalization trends pose challenges to continued economic integration and convergence of these economies.

Risks to the global economy remain two-sided, characterized by both easily modeled upsides and downsides, but also “gray swans” with less predictable outcomes.

• Downsides risk include: the potential for higher inflation compared to prior decades, tighter monetary policy and higher interest rates, greater sovereign debt risks, geopolitical uncertainties, labor shortages due to aging populations, deglobalization, and a difficult and uneven transition towards renewable energy sources.
• Potential upsides that firms can capitalize upon include: significant productivity gains from past investments in R&D, infrastructure, digital transformation, and human capital; and potential breakthroughs in technological advancements that enhance production, profits, and livelihoods.

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