The Economist Intelligence Unit (EIU) has forecast modest global economic growth in the face of ongoing challenges from inflation and the Russia-Ukraine war over 2023.
The research and analysis firm said this week in its Global Economic Outlook 2023 report that the global economy had remained “resilient” in the face of severe economic headwinds, but growth would slow “sharply” in 2023 nonetheless.
The EIU forecasted global economic growth of 2 per cent for the year — up from its prediction of 1.9 per cent last month and driven by an improvement in its US growth outlook.
The EIU said it expected to see the Chinese economy grow by 5.7 per cent as consumer-led demand for goods and services was propelled by the end of COVID-19 lockdowns.
As for Europe, the EIU predicts 2023 economic growth across the European Union of just 0.7 per cent as the continent fights inflation and energy struggles.
Looking beyond 2023, the EIU expects a moderate global recovery in 2024, with real global GDP growth of 2.5 per cent.
However, the future of global inflation rates looks grim, despite the “sky-high” interest rates dominating 2022 and 2023.
The EIU predicts that global inflation, which was at 9.3 per cent in 2022, would dip to 6.7 per cent in 2023 and 4.3 per cent in 2024.
The EIU said global commodity prices would likely continue to ease from their 2022 peak but remain well above pre-war levels over 2023.
An EU ban on seaborne Russian oil imports has exacerbated the energy market’s tightness, and oil prices will remain high and trade above US$80 (A$119) per barrel until 2025.
Gas, on the other hand, could ease gradually into 2024, though the EIU said it would remain above 2019 levels.
Additionally, fears are rising around global food supply amid the continued risks to export grains from Russia and Ukraine, which account for up to one-third of the global wheat trade.
The potential for a war-induced shortage of fertilisers has been taken into account as doubts grow over Russia’s willingness to hold up its grain deal with Ukraine.
The deal is expected to be renewed later this month and will allow the continued passage of food supplies out of Ukraine.
How long will rates rise?
The EIU said inflation would remain a driver of economic forecasts in 2023, and it expected global central banks to only slow their string of rates hikes by mid-year. Despite this, rates will remain high in 2023 and 2024.
Of course, the EIU admitted several potential scenarios could derail its future forecasts as escalations in the Russia-Ukraine war remained uncontrollable and high consumer prices drove further global social unrest.
Escalating tensions around Taiwan and fears of more banking financial stress that could lead to a wider economic crisis are increasing, paired with the emergence of an alleged new variant of COVID-19 that can escape immunity.
Meanwhile, the extreme weather events that heightened global inflation in 2022 could continue to plague 2023.
In any case, the EIU said it expected interest rates in most major economies to peak by mid-2023 and stay on hold until 2024.