Macro World Run Down

Global: The global GDP growth is expected to decelerate, reaching 2.9% this year (which is in line with my previous estimate of 2.8%) and 2.5% next year (down from 2.7%). This slowdown is primarily due to the delayed effects of tighter monetary policies, decreased household savings, and reduced fiscal support. Headline inflation has significantly decreased, largely due to lower energy prices, and core inflation is also falling because of reduced input-price pressure. The recent increase in oil prices is unlikely to counteract the ongoing disinflation trend as overall demand weakens. While policy rates in most advanced economies have likely peaked, rate cuts are expected to be postponed until central banks see concrete evidence of sustained core inflation approaching their targets.

US: My GDP forecast for the United States is revised to 2% for this year (up from 1.3%). However, I anticipate a mild recession at the beginning of the next year, followed by flat annual growth in 2024. The recent strong performance in personal consumption is not expected to be sustained due to tightening credit conditions, a weakening job market, reduced household savings, and the resumption of student loan repayments. I anticipate headline inflation to ease to around 2% by the end of the next year, with core inflation slightly above 2%. I believe that the Federal Reserve's rate-hiking cycle has reached its peak after one more hike this year, and I’m projecting 150 basis points of rate cuts for next year, starting in March.

Eurozone: The Eurozone's GDP is projected to, at best, stagnate in the second half of 2023, down from my previous estimate of moderate expansion. Although my growth forecast for this year remains at 0.5%, it lowers my 2024 forecast to 0.6% from 1.0%. Corporate profit margins are compressing due to weakening demand, posing challenges to the labour market's resilience. I expect inflation to average 3.5% in the fourth quarter of 2023 and return to the European Central Bank's 2% target by the end of 2024. It's likely that the ECB's tightening cycle has conclude, and I continue to anticipate the first rate cut in mid-2024.

CEE: I anticipate that EU-CEE economies will grow by 0.8% in 2023 due to destocking and weak private consumption. There is potential for a rebound to 2.7% in 2024 if domestic demand picks up through real wage growth and the initiation of postponed capital expenditure projects. The Turkish economy might see growth of 4.3% in 2023 and 3.4% in 2024 as the fiscal stimulus diminishes and financial conditions tighten. Russia, which has outperformed expectations in 2023, could face a year of stagnant growth. Except for the National Bank of Hungary (NBH), I do not anticipate rate cuts from EU-CEE central banks until 2024, while the Central Bank of the Republic of Turkey (CBRT) and the Central Bank of Russia (CBR) may implement further rate hikes this year.

UK: The United Kingdom's GDP is likely to increase by 0.3% this year (up from 0.1%). However, I still anticipate a slight contraction of 0.1% in 2024. Activity is expected to contract by a cumulative 0.5% from the third quarter of 2023 to the first quarter of 2024, followed by a sluggish recovery as the full effects of rate hikes are yet to materialize. I project headline inflation to rapidly decline to the 2% target by the end of 2024. The Bank of England (BoE) is likely finished with rate hikes, and I expect rate cuts to begin in the third quarter of 2024 or possibly sooner.
 
China: I’m revising my GDP growth forecast for China in 2023 to 5% (down from 5.4%), and for the following year to 4% (down from 4.3%). Despite a strong rebound in the first quarter of 2023 following the reopening of the economy, overall activity has been disappointing on various fronts. Private consumption remains subdued, and the real estate sector continues to pose a source of vulnerability. Consumer inflation is nearly non-existent due to weak overall demand. The government has thus far refrained from implementing an extensive policy stimulus, instead opting for a piecemeal approach. In the future, most of the policy support is likely to come from monetary policy, including rate cuts and targeted lending facilities.

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