Macro Insights Weekly: Too pessimistic about ’23 and too optimistic about ’24?
Key risks for 2023 are (i) Fed policy error, (ii) tightening global financing conditions triggering EM distress, (iii) worsening of China’s growth dynamic, (iv) spill-over from great power rival...
Group Research - Econs, Taimur Baig28 Nov 2022
  • Industrial economy growth would slow sharply due to high interest rates even as inflation ebbs
  • China’s growth will recover, but many internal and external headwinds persist
  • For Asia ex-China, growth will be weighed down by weak exports, but reopening momentum to remain
  • We don’t expect a prolonged downturn; global growth to rebound in 2024 with lower rates and inflatio
  • Risk is we are too pessimistic about 2023 and too optimistic about 2024
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Commentary: Outlook for 2023-24

The procession of global outlook reports from multilateral agencies underscores deep concern about the outlook. The widespread view is that macroeconomic risks remain unusually large, ranging from getting US monetary policy stance wrong to tightening global financing conditions triggering emerging market debt distress, not to mention a worsening of China’s growth dynamic around a weak property sector and continued struggles with the pandemic.

We recognise these risks and have incorporated them in our forecasts for 2023 and 2024. For next year, we see growth slowing sharply in the US (from 1.5% this year to roughly flat in 2023) and EU (from 3.2% this year to a small contraction next year). The US would be facing the lingering effects of substantial policy tightening, with real rates rising by more than 200bps through the course of 2023, as nominal policy rate holds at 5% while inflation eases gradually. As for EU, the energy price and sentiment shock emanating from the war in Ukraine is bound to drag down growth. Typically, China is a critical balancing factor during global cyclical weakening, but this time it has its hand full, with a myriad of internal and external headwinds. We see no more than 4% growth there in 2023.

In Asia ex-China, the prospects are mixed. Growth will be subtracted by weak exports, which is already the making. But the region is in the middle of a strong re-opening dynamic, with travel, tourism, and events surging, all proving to be resilient despite the sharp increase in cost of living. We attribute this to relatively healthy household balance sheets in the region. Taken together, we expect Asean-6 growth to ease of 4.8% next year, from a projected 5.8% this year.

All in all, we are projecting a sharp decline in global growth next year, but we don’t expect lasting economic slowdown. After slowing to 2.1% next year, global demand would turn around in 2024, growing by over 3%. This would take place as US monetary policy is eased, lowering the cost of funding worldwide, China’s macro and public health fundamentals undergo a rebound, and energy markets see considerable easing of supply chain pressures. 

What are the chances of this narrative being wrong? Quite a bit, we’re afraid. Firstly, 2023 may turn out to be better than feared, as consumers, by virtue of their balance sheets being in sounder health than they were during the 2008 Global Financial Crisis, may end up demonstrating a surprising degree of demand resiliency despite higher rates. Meanwhile, 2024’s recovery narrative may be undermined by the lagged effect of ongoing rate hikes, which the Fed won’t be able to offset as its room to cut rates may be limited by still-2%+ inflation. War, pandemic, and great power rivalry may be additional spoilers.

Taimur Baig

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Taimur Baig, Ph.D.

Chief Economist - Global
[email protected]

Nathan Chow 周洪禮

Senior Economist and Strategist - China & Hong Kong 
[email protected]

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