Global economy heading for one of the worst years in three decades

The global economy is facing one of its worst years in three decades as energy shocks triggered by the war in Ukraine continue to weigh on markets, assesses Bloomberg Economics.

In a new analysis, economist Scott Johnson predicts the world economy will grow by just 2.4% in 2023. That is down from the 3.2% estimated this year and the lowest since 1993 – excluding the crisis years of 2009 and 2020.

It is likely, however, that the number masks divergent growth rates, with the euro zone starting the year in recession and the United States ending 2023 in one.

On the other hand, China is projected to grow more than 5%, driven by a faster-than-expected end to its zero-tolerance Covid-19 strategy and support for the property market, which has been hit hard by the crisis.

Differences also surface when it comes to monetary policy, given that 2022 was a year in which central banks “ran into tight territory,” Johnson wrote.

“In the US, with wage gains set to keep inflation above target, we believe the Federal Reserve is heading towards a terminal rate of 5% and will remain there through the first quarter of 2024. A faster rate of inflation will mean a lower terminal rate and the possibility of cuts in late 2023.”

In China, where policymakers are torn between wanting to support the recovery and worrying about currency weakness, “limited” rate cuts are in play.

With information from Bloomberg Línea