Global Forecast Update (November 2022)

Global real GDP growth is currently tracking a 3.3 percent increase over the previous year in the third quarter of 2022, only slightly down from 3.5 in the second quarter. However, as headwinds to global growth are intensifying, we expect yearly global GDP growth to moderate further to about 2 percent from Q4 2022 onwards. Headwinds include persistent inflationary pressures limiting demand and production, very rapid tightening of global financial conditions, and low levels of business and consumer confidence in large economies around the world.

The Conference Board Global Leading Economic Index has contracted for a couple of months now, pointing to rising risks of a downturn. Our forecast for global GDP is for 3.3 percent growth in 2022 and 2.1 percent in 2023. Global growth of 2.1 percent does not formally constitute a global recession, but if achieved it would be the weakest growth rate since 2001 (outside of global recession years 2009 and 2020).

For more resources on the global economy, please see our monthly updated Global Economic Outlook page.

United States

The Conference Board forecasts that economic weakness will intensify and spread more broadly throughout the US economy over the coming months, with a recession to begin around the end of 2022. This outlook is associated with persistent inflation and rising hawkishness by the Federal Reserve. We forecast that 2022 real GDP growth will come in at 1.8 percent year-over-year and 2023 growth will slow to zero percent year-over-year.

While the US economy did not slip into recession earlier this year, despite several negative GDP prints, we believe that a broad downturn is now underway. Nevertheless, due to better- than-expected economic growth in Q3 2022, we upgraded our forecast for Q4 2022 from -0.8 percent to -0.5 percent. Additionally, recent guidance from the Fed on the interest rate trajectory heading into 2023 led us to downgrade our forecast for 2023. We now expect the recession to extend into Q2 2023 and the rebound in H2 2023 to be less pronounced.

Soft economic growth seen over the course of much of 2022, coupled with persistently high inflation readings, is consistent with a stagflationary environment. While easing supply-side constraints and a more hawkish monetary policy should help cool inflation over the coming quarters, rising interest rates will tip the US economy into a broad-based recession. This contraction will somewhat loosen extremely tight labor markets and drive the unemployment rate higher. Still, we anticipate the jobless rate may peak at 4.5 percent, which by historical standards is quite low. This expectation reflects severe labor shortages that may continue despite the downturn. We expect the recession to last three quarters and inflation to remain above the Fed’s 2 percent target until at least 2024. This period will also exhibit stagflationary characteristics—though not as severe as those seen presently.

For more resources on the US economy, please see our monthly updated forecast, monthly Economy Watch webcast, and report.

Europe

GDP reports for the third quarter came in better than expected, particularly for Germany and Italy. Nonetheless, the European economy is clearly slowing, with Euro Area real GDP expanding 2.2 percent on a yearly basis in Q3, down from 4.2 and 5.4 in the second and first quarters of 2022.

The short-term energy situation has stabilized in recent months, as natural gas storage levels are at full capacity and reduction in usage is on track to meet the targets set at the EU level. Demand is lower partly in response to high prices; decreased demand is particularly visible in falling output of energy-intensive industries and because of unusually warm fall weather. However, prices remain elevated, and replenishing of storage levels for the winter of 2023 without Russian supplies remains a large concern.

Inflation ticked up further in October into the double digits and is expected to remain in this range at least until the beginning of 2023, dampening real incomes and spending. The European Central Bank hiked interest rates another 75 basis points in its last meeting, but may slow down the pace of monetary normalization in the quarters to come amid increasing concerns of a looming recession.

Our forecast is for GDP to contract on a sequential basis in both the Euro Area and the UK over the current and coming quarters. However, the recession may be relatively mild as consumers dip into their accumulated savings, the labor market remains tight, and generous fiscal packages continue to provide support. Our forecast is for Euro Area GDP to grow by a mere 0.3 percent in 2023, down from an estimated 3.2 percent in 2022.

For more resources on the European economy, please see our monthly Economy Watch report and annual long-term outlook (October 2022).

China

Data through September show a steady recovery in industrial production and resilient growth in investment, but continued weakness in consumer-focused services. Export growth continues to moderate on the back of a slowing economy.

We forecast China to grow 3.3 percent in 2022 and 5.1 percent in 2023. This is based on a number of assumptions. First, we expect COVID-19-related restrictions to ease in H2 2023 thanks in part to progress in the development of new vaccines and medications. Second, the property downturn will bottom out driven by policy support and the stabilization of housing prices and sales, though residential investment is expected to remain weak. Finally, ongoing global economic weakness will lead to a moderation, but not to a precipitous fall, of external demand for China-made products.

However, risks are tilted to the downside, and there is growing uncertainty about China’s growth prospects given: 1) the inevitability of more COVID-19 flare-ups and lack of information on how restrictions will be relaxed and to what extent, 2) the likelihood that the global economic slowdown could worsen, and 3) the impact of geopolitical developments, such as the recent US decision to restrict exports to China of integrated circuits and the components and equipment required to design and manufacture them.

For more resources on the Chinese economy, please see our monthly Economy Watch report and annual long-term outlook (November 2022).

Emerging Markets

The economic environment for emerging economies has rapidly deteriorated, which is particularly visible in tightening global financial conditions. This is leading to capital outflows, depreciating currencies, and increased risks of debt crises. Inflationary pressures are either already elevated or are starting to gather momentum, leading to tightening monetary policy and hence weaker growth.

However, economic momentum in most large emerging economies so far has proven resilient despite the headwinds. This is partly driven by ongoing recovery growth as economies reopened after pandemic shutdowns but also partly due to stronger underlying growth as many of these economies are continuing to catch up to richer areas. While we expect weakening ahead for Latin American economies, Asian economies including India may continue to outperform the global economy. In fact, a large part of the 2.1 percent global GDP growth forecast for 2023 can be attributed to emerging economies in Asia (including China).

For more resources on the emerging market economies, please see our monthly Economy Watch report.