Global Economic Outlook 2023 

Interest in the global economic situation has understandably sparked much conversation around the world as we welcome the Year of the Rabbit. From Davos, Switzerland with the 2023 World Economic Forum (WEF) to the Marina Bay Financial Centre in Singapore with the 2023 business outlook seminar, discussions and forecasts on the global economy continue to make headlines. 

Perhaps the good news that came out of Davos was the announcement by the International Monetary Fund (IMF) that the global economic growth was expected bottom out this year despite the rising interest rates and other challenges. 

Speaking at the WEF panel in Davos, IMF managing director Kristalina Georgieva highlighted an IMF forecast for global growth to decelerate to 2.7% this year from around 3.2% last year. 

She said growth was expected to bottom out in 2023, and “to start the process in which we go up rather than down.” 

Inflation showing early signs of easing

Sharing the optimism about the global economic outlook is Irvin Seah, Senior Economist at Singapore-based financial services group DBS Bank Limited. 

“The good news is that inflation has peaked in the US and there are tentative signs of easing,” said Mr Seah at the “Seminar on Business Outlook 2023” organized by the Singapore Business Federation

“We can see the core PCE (personal consumption expenditures) numbers and the CPI (Consumer Price Index) numbers; they are now showing signs of easing. The expectation is for inflation to ease off as we move into 2023 and 2024. With inflation having peaked and showing early signs of easing, it means that the Fed will have to downshift its interest rate hike.” 

There is currently a lot of talk about the possibility of a recession in the United States this year, according to Mr Seah. However, his expectation is that the US will avoid a full-fledged recession, but it will be a close call.  

“According to our economic forecast for the US, the GDP is expected to be at 0.3%. This means that the US will narrowly avoid a recession.” 

He emphasized that it is important to understand where a specific country is in the current economic cycle in order to make informed investment decisions. 

“The question is, where are we in this cycle?” he asked. “Are we in a contraction phase, expansion, or slow down? It depends on the country. For example, if we look at the Euro zone, it is in contraction and a big part of the Euro zone is in recession. If we look at China, it’s in the recovery phase. If we look at the US, Singapore and most countries around the world, they are in a slower (growth) phase.”

How China’s reopening will impact growth outlook?

Mr Seah pointed out that there are four main engines driving economic growth in China: exports, consumption, investment and government spending. Exports and domestic consumption are currently constrained, due to the zero-Covid policy and people’s concerns about the ongoing infection waves.  

China’s economic recovery is currently facing various challenges, particularly in terms of domestic consumption and private investment, he added. 

Foreign direct investments, retail sales, and industrial production numbers have all decreased significantly due to the Covid-19 measures in place. The government’s hands are tight in terms of stimulating domestic consumption, as many people have lost their jobs and companies have been affected by the pandemic. And the future income confidence index, which measures people’s expectations for their income going forward, is currently at a record low. 

Mr Seah said it will take time for companies to rehire people and for people’s income to improve, which will in turn lead to more spending.  

He suggested that the main driver for China’s growth in the intermediate term will likely be infrastructure investment, and this could be a good opportunity for those in the construction industry. In addition, inflation is expected to remain low, which is a positive for the economy. 

The key Takeaways

1. Economic growth is slowing, and inflation is showing early signs of easing.

2. Monetary tightening may be coming to an end, but interest rates will likely remain high for now.

3. The uplift will likely be felt in second quarter of 2023, but more so from mid-2023 onwards.

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