Global 2023 economic view downgraded

BENGALURU - Global economic growth is forecast to barely clear 2 per cent this year, according to a Reuters poll of economists who said the greater risk was a further downgrade to their view, at odds with widespread optimism in markets since the start of the year.

Falling energy prices, a slowdown in inflation in most economies from multi-decade highs, an unexpectedly resilient euro zone economy and China’s economic reopening have led traders to speculate the downturn will be more mild.

That has driven MSCI’s all-country world index of shares up nearly 20 per cent from October lows, hitting a five-month closing high on Tuesday, despite the greater risk that central banks will keep interest rates higher for longer rather than cut them.

But economists as a whole were much less upbeat, paring back growth forecasts for this year and next from 2.3 per cent and 3.0 per cent, respectively, in an October 2022 poll to 2.1 per cent and 2.8 per cent, respectively. Their more dour mood flew in the face of some notable upgrades by banks in recent weeks.

The 2023 growth forecast is well behind an International Monetary Fund forecast of 2.7 per cent that was issued in October and is due to be updated next week. The latest Reuters polls of more than 500 economists covering 45 economies were taken Jan. 5-25.

More than two-thirds of respondents, 130 of 195, said the greater risk to their world growth outlook was that it would be even slower than what they currently expect.

Much will depend on how much success the world’s major central banks can claim from roughly a year’s worth of historically aggressive interest rate hikes that are not over yet.

The full impact of rate hikes can take a year or more to show up in economies.