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Economic and market outlook for the second half of 2023 Beating back inflation

Global inflation trends

- The global economy faces several challenges such as record-high inflation, recessionary fears, labor shortages, supply chain disruptions, geopolitical tensions, and commodity-market volatility¹².

- Global headline inflation is expected to fall from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2 percent in 2024. Underlying (core) inflation is projected to decline more gradually, and forecasts for inflation in 2024 have been revised upward..

- The following chart shows the annual headline CPI inflation for different groups of countries based on the World Bank’s database:

| Group | 2021 | 2022 | 2023 |

| --- | --- | --- | --- |

| World | 5.0% | 8.8% | 6.6% |

| Advanced economies | 2.9% | 5.7% | 4.1% |

| Emerging market and developing economies | 6.1% | 10.9% | 8.3% |

Regional economic outlooks

- The US economy is expected to slow down but avoid a recession, as the Fed has tightened monetary policy aggressively to combat inflation. The US is less exposed to external shocks than many other countries, and could benefit from higher energy and food prices¹². The Deloitte forecast shows very slow growth in the first half of 2023—but not enough to cause a recession¹.

- The eurozone slipped into a recession in the winter of 2022, as inflation soared and consumer confidence plunged. The European Central Bank (ECB) has raised interest rates twice, but remains cautious about further tightening given the uncertainty over the Russian-Ukrainian conflict and its impact on energy supplies and security². The IMF projects a modest recovery of 1.9 percent growth in 2023 for the euro area, but warns of downside risks from persistent inflation, political instability, and fiscal sustainability³.

- China's economy has also lost momentum, as the property sector correction and the regulatory crackdown on tech and other industries have weighed on growth and investment. The People's Bank of China (PBOC) has cut interest rates and reserve requirements to support liquidity and credit, but faces a delicate balance between stimulating demand and containing financial risks². The IMF expects China's growth to slow down from 8.1 percent in 2022 to 5.6 percent in 2023, reflecting both cyclical and structural factors³.

- Emerging markets have diverged in their economic performance and policy responses, depending on their exposure to commodity prices, inflation pressures, fiscal space, and vaccination progress. Some countries, such as Brazil, India, and Turkey, have hiked interest rates significantly to curb inflation, while others, such as Indonesia, Mexico, and South Africa, have kept rates steady or cut them slightly to support growth. The IMF forecasts that emerging markets will grow by 5.0 percent in 2023, down from 6.7 percent in 2022.

The outlook for the second half of 2023 is highly uncertain and depends on several factors, such as the evolution of the pandemic and new variants, the effectiveness of policy actions to tame inflation and stabilize growth, the resolution of geopolitical conflicts and trade disputes, and the adaptation of businesses and consumers to the changing environment. Beating back inflation will be a key challenge for many economies, as it erodes purchasing power, distorts relative prices, and undermines confidence.

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