January 30,2023
World Economic Situation and Prospects 2023
Multiple shocks to the world economy
A series of severe and mutually reinforcing shocks struck the world economy in 2022 as it approached the midpoint for achieving the 2030 Sustainable Development Goals (SDGs). With the impacts of the COVID‑19 pandemic still reverberating worldwide, the war in Ukraine ignited a new crisis, disrupting food and energy markets, and worsening food insecurity and malnutrition in many developing countries. High inflation unleashed an erosion of real incomes and a global cost-of-living crisis that has pushed millions into poverty and economic hardship.
At the same time, the climate crisis continued to impose a heavy toll, with heat waves, wildfires, floods and hurricanes inflicting massive economic damages and generating humanitarian crises in many countries. All these shocks will weigh heavily on the world economy in 2023. Persistently high inflation, which averaged about 9 per cent in 2022, has prompted aggressive monetary tightening in many developed and developing countries.
Rapid interest rate hikes, particularly by the Federal Reserve in the United States of America, have had global spillover effects, triggering capital outflows and currency depreciations in developing countries, increasing balance of payment pressures and exacerbating debt sustainability risks. Financing conditions have tightened sharply amid high levels of private and public debt, pushing up debt-servicing costs, constraining fiscal space and increasing sovereign credit risks. Rising interest rates and diminishing purchasing power have weakened consumer confidence and investor sentiment, further clouding near-term growth prospects for the world economy. Global trade has softened due to tapering demand for consumer goods, the protracted war in Ukraine and continued supply chain challenges.
Against this backdrop, world output growth is projected to decelerate from an estimated 3 per cent in 2022 to only 1.9 per cent in 2023, marking one of the lowest growth rates in recent decades.
Global growth is forecast to moderately pick up to 2.7 per cent in 2024, if, as expected, some macroeconomic headwinds begin to subside next year. Inflationary pressures are projected to gradually abate amid weakening aggregate demand in the global economy. This should allow the Federal Reserve and other major central banks to slow the pace of monetary tightening and, eventually, shift to a more accommodative monetary policy stance. The near-term economic outlook remains highly uncertain, however, as myriad economic, financial, geopolitical and
environmental risks persist.
The current global economic slowdown cuts across both developed and developing countries, with many facing risks of recession in 2023.
Growth momentum has weakened in the United States, the European Union and other developed economies, adversely affecting the rest of the world economy. In the United States, gross domestic product (GDP) is projected to expand by only 0.4 per cent in 2023 after estimated growth of 1.8 per cent in 2022. Consumers are expected to cut back spending given higher interest rates, lower real incomes and significant declines in household net worth. Rising mortgage rates and soaring building costs will likely continue to weigh on the housing market, with residential fixed investment projected to decline further.
The short-term economic outlook for Europe has deteriorated sharply as the war in Ukraine continues. Many European countries are projected to experience a mild recession, with elevated energy costs, high inflation and tighter financial conditions depressing household consumption and investment. The European Union is forecast to grow by 0.2 per cent in 2023, down from an estimated 3.3 per cent in 2022, when further easing of COVID‑19 restrictionsand release of pent-up demand boosted economic activities. As the European Union continues its efforts to reduce dependence on fossil fuels from the Russian Federation, the region remains vulnerable to disruptions in the energy supply, including gas shortages.
The prospects for the economy of the United Kingdom are particularly bleak given the sharp decline in household spending, fiscal pressures and supply-side challenges partly resulting from
Brexit. A recession began in the United Kingdom in the second half of 2022; GDP is projected to contract by 0.8 per cent in 2023. Despite growing at a moderate pace, Japan’s economy is expected to be among the betterperforming developed economies in 2023. Unlike in other developed economies, monetary and fiscal policy remain accommodative. Prolonged chip shortages, rising import costs (driven by a weakening Japanese yen) and slowing external demand are, however, weighing on industrial output. GDP is forecast to increase by 1.5 per cent in 2023, slightly lower than the estimated growth of 1.6 per cent in 2022.
The war in Ukraine heavily impacts near-term economic prospects for the Commonwealth of Independent States and Georgia. The contraction of the economy of the Russian Federation and
the significant loss of output in Ukraine are having spillover effects on the rest of the region. Nonetheless, the Russian economy shrank less than initially expected in 2022, with GDP declining by only about 3.5 per cent due to a massive current account surplus, the continued stability of the banking sector and the reversal of initially sharp monetary tightening. Several of the region’s economies have benefited from the relocation of businesses and residents as well as capital inflows, experiencing faster-than-expected growth in 2022. Improved terms of trade supported growth in the region’s energy exporters. Overall, aggregate GDP of the Commonwealth of Independent States and Georgia (excluding Ukraine, for which this report is not presenting a forecast due to the uncertainties involved) is expected to contract by 1 per cent in 2023, following an estimated decline of 1.6 per cent in 2022.
Source: United Nations’ World Economic Situation and Prospects report
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.
