n Q1 2023GLOBAL he global economy is forecast to slow considerably in ECONOMIC nd lingering risks resulting from the war in Ukraine.FORECASTS: Q1 2023

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Not to be distributed without permission. The data included in this report is accurate according to Euromonitor International at the time of publication: January 2023

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03 The State of the Global Economy in Q1 2023

Key Findings

09 Top Risks to the Global Economy

12 Global Stagflation Scenario: Vulnerabilities Remain High for Major Economies

14 Japan

15 Mexico

16 Eurozone

The data behind this report

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The The State of theState of the GlobalGlobal Economy Economy in Q1in Q1 20232023

The global economy is forecast to slow considerably in 2023, The global economy is forecast to slow considerably in 2023, edging close to recession as it continues to face ripple effects edging close to recession as it continues to face ripple effects and lingering risks resulting from the war in Ukraine.and lingering risks resulting from the war in Ukraine.

2023 GLOBAL REAL GDP GROWTH

2023 INFLATION FORECAST

Global real GDP growth is expected to drop from 3.3% in 2022 to 2.3% in 2023. Although inflation is expected to decline at 6.8%, it will remain significantly above the long-term trend.

Businesses and consumers will see persistent price pressures combined with an increasingly restrictive impact of rising interest rates on economic activity.

GLOBAL REAL GDP GROWTH BASELINE FORECAST 2023–2024

Despite the weak outlook going into 2023, there are some sources of optimism. The US economy has been more resilient than expected behind a strong labour market. The Eurozone avoided an acute energy crisis as mild temperatures lowered demand. And China’s reopening following the end of its zero-COVID policy could support global growth later in 2023 following a likely period of COVID-19-related disruptions.

Your business needs to mitigate risk and improve resiliency. Our quarterly economic analysis and forecasts help you anticipate change and prepare for how it’s going to affect your industry and market. Use these insights to guide your investment, decisions and growth plans in 2023.

TheKey State of findings

in Q1 2023The global economy slows sharply

The global economic outlook for 2023 is among the weakest in decades. The economic fallout The global economy is forecast to slow consfrom Russia’s invasion of Ukraine will weigh edging close to recession as it continues to faheavily on growth as demand is dampened by and lingering risks resulting from the war in Upersistent inflation and the increasing impact of rising borrowing costs for businesses and consumers. Plus, the sharply reduced growth projection for 2023 remains fragile, as the global economy faces multiple headwinds, including immediate risks emanating from the ongoing war in Ukraine, elevated geopolitical volatility and rising economic fragmentation.

The global economic outlook for 2023 is among the weakest in decades...

d lingering risks resulting from the war in Ukraine.The US and Eurozone edge closer to a recession

The US and the Eurozone still face the risk of recession with growth stalling in 2023. Both economies unexpectedly avoided recession in late 2022 behind resilient consumer spending and falling energy prices. However, elevated inflation excluding energy and food prices, paired with rising interest rates, will noticeably reduce private sector confidence and slow economic activity. In addition, the Eurozone will continue to face high energy uncertainty, particularly with regard to natural gas imports and electricity generation.

China’s reopening provides optimism

Despite a bleak outlook and lingering risks, the global economy will see several growth impulses. China’s reopening following the unexpected end to its zero-COVID policy bears the potential of significantly mitigating the global downturn. Moreover, numerous emerging markets have proved resilient amid surging inflation, increasing interest rates and exchange rate volatility. This relative strength of economies, particularly in Asia Pacific, is expected to support growth in 2023.

The StGlobal ate of the inflation begins Global Economy gradual downward in Q1 2023trend, but remains significantly elevated

Global inflation peaked prior to the turn of the year, starting a downward trend which will see inflation gradually decline from 9.1% in 2022 to 6.8% in 2023.

The war in Ukraine had the most profound impact on global inflation, leading to substantial increases in food and energy prices. At the same time, on-going pandemic-related supply chain constraints, diverging monetary policies and tight labour markets are adding pressure.

In 2023, most of the key drivers of inflation will continue to abate. The State of tRapidly rising interest rates will weigh on demand, leading to further easing of commodity prices and supply chain pressures. Plus, improving growth prospects in China and the Eurozone have contributed to a weaker US dollar, thereby reducing price pressures outside of the US.

and lingering risks resulting from the Global inflation is expected to remain higher for longer, driven especially by labour shortages in advanced economies and persistent commodity price pressures in developing markets. Before inflation slows to 4.4% in 2024, most countries are likely to see price increases spread more broadly throughout their economies.

GLOBAL CONSUMER PRICE INFLATION BASELINE FORECAST 2023–2024

The StateTop Risks to the Global Economy

resulting from the warDisruptions from the war in Ukraine

The war in Ukraine remains the key downside risk to the global economy in 2023. Since its outbreak, economic projections have deteriorated substantially. Further escalation would likely be equally disruptive, adversely affecting businesses and consumers.

Overly restrictive monetary policies by central banks

Central banks have rapidly increased interest rates with the aim to slow economic activity and lower inflation. Yet, with high uncertainty regarding the impact of fast-rising rates in terms of timing and magnitude, potential over-tightening of monetary conditions could result in a global recession including severe debt distress globally.

The StateTop Risks to the Global Economy

3 resulting from the war in UkrainSupply chain constraints

China’s reopening raises global growth potential in 2023. However, the country’s rapid policy reversal also raises the risk of significant COVID-19-related disruptions domestically as well as globally through new variants, thereby fuelling a COVID-19 pessimistic scenario.

Extreme weather events

Climate change presents an immediate and growing risk to the global economy. The increasing frequency of extreme weather events is expected to result in rising economic damage, lost output and inflationary pressures, at least regionally, due to supply shocks.

REAL GDP ANNUAL GROWTH FORECASTS AND REVISIONS FROM LAST QUARTER—ADVANCED ECONOMIES

	COUNTRY/REGION	2022 2023		2024	2025	2026-2030 2023 REVISION 2024 REVISION
	Advanced Economies (AE)	2.6%	0.5%	1.6%	1.5%	1.4%	-0.2%	-0.1%
	US	1.8%	0.2%	1.4%	1.8%	1.7%	-0.3%	-0.1%
	Canada	3.4%	0.7%	1.7%	2.1%	1.7%	-0.4%	0.0%
	Eurozone	3.2%	0.2%	1.6%	1.3%	1.2%	-0.2%	-0.3%
	Germany	1.9%	-0.5%	1.5%	1.7%	1.1%	0.0%	0.0%
	France	2.5%	0.3%	1.5%	1.4%	1.3%	-0.1%	0.0%
	Italy	3.8%	0.2%	1.3%	1.1%	0.6%	+0.3%	0.0%
	Spain	4.6%	1.1%	2.1%	1.8%	1.3%	0.0%	-0.4%
	UK	4.2%	-0.8%	1.0%	1.8%	1.6%	-0.3%	+0.1%
	Japan	1.4%	1.3%	1.1%	0.8%	0.6%	-0.1%	-0.1%
South Korea 2.6%			1.6%	2.3%	2.2%	2.0%	-0.3%	0.0%

Source: Euromonitor International Macro Model
Note: Annual growth rates in %, revisions in percentage points.

The StGlobal ate of the Stagflation Global EcScenario: in Q1 2023Vulnerabilities Remain High for The global economy is forecast to slow consideraedging close to recession as it continues to face riMajor Economies

In the global stagflation scenario, the economy comes under significant pressure as key growth risks materialise. Consequently, global real GDP declines by 0.8% in 2023, followed by a subpar recovery of 1.2% in 2024. In addition to weaker growth, global inflation rises to 8.0% in 2023 and 6.1% in 2024.

The primary risk driving the global stagflation scenario in 2023 is further disruption to global energy and food supply in the context of the war in Ukraine. This would ignite a resurgence of global inflation, increasing the likelihood of more persistent price pressures in the global economy.

GLOBAL RISK INDEX AND RANKINGS

SCENARIO	GLOBAL RISK INDEX	GLOBAL REAL GDP IMPACT	PROBABILITY
Global Stagflation	5.6%	-5.6%	30%
COVID-19 Pessimistic	1.4%	-3.5%	15%
China Hard Landing	0.7%	-2.2%	10%
US-China All-Out Trade War	0.2%	-0.6%	10%

Source: Euromonitor International Macro Model. Note: Global Risk Index ranks scenarios by the expected global GDP impact, calculated as the 3-year cumulative global real GDP impact relative to baseline scenario multiplied by its 1-year probability, relative to the average global downside risks probability. The Index is based on 62 of the world’s major economies (representing more than 90% of global GDP at PPP).

30%

probability of global stagflation

15%

probability of COVID-19 pessimistic

10%

probability of China hard landing

10%

probability of US-China all-out trade war

Source: Euromonitor International Macro Model.

Notes: Data from 2023 onwards are forecasts, updated 14 January 2023

Japan

Weaker exports and faltering pent-up in Q1 2023spending to subdue future growth

Following weaker growth in 2022, Japan’s economic performance is set to moderate The global economy is forecast to sfurther in 2023. While the new economic edging close to recession as it copackage and the anticipated pay rises and lingering risks resulting from are set to support private consumption, surging inflation will continue to dent household purchasing power.

Inflation is expected to decelerate over the course of 2023. However, the expected acceleration in wage hikes will likely put upward pressure on prices over the medium term.

Japan’s strained finances are a major downside risk. To offset the negative considerably in 2023, impact of the pandemic and rising s to face ripple effects inflation, the Japanese government ar in Ukraine.continues to provide support for households and businesses. Although fiscal stimulus is set to promote economic recovery, it raises concerns over the country’s fiscal health.

Japan Real GDP Growth Baseline and Scenario Forecasts 2020–2026

Real GDP Growth, %

Mexico

Downturn in the US is expected in Q1 2023to slow growth momentum

Mexico’s real GDP growth projection for 2023 was again revised downwards in The global economy is forecast to sEuromonitor’s Q1 2023 baseline forecast edging close to recession as it continas the country’s economy faces significant and lingering risks resulting froheadwinds due to growing recession concerns in the US.

The Bank of Mexico slowed the pace of interest rate increases in late 2022 as inflation eased following a peak in Q3 2022.

Further rising interest rates and a potentially deeper-than-expected considerably in 2023, recession in the US, Mexico’s most s to face ripple effects important trading partner, cloud the ar in Ukraine.economic forecast, given the risk to exports and remittances.

Mexico Real GDP Growth Forecasts, 2020–2026

Euromonitor Baseline Global Stagflation C19 Pessimistic
Source: Euromonitor International Macro Model.
Notes: Data from 2023 onwards are forecasts, updated 14 January 2023
Global Stagflation scenario: a combination of stagnation in global economic activity combined
with high inflation C19 Pessimistic scenario: a resurgence of COVID-19 pandemic.

Source: Euromonitor International Macro Model. Notes: Data from 2023 onwards are forecasts, updated 14 January 2023 Global Stagflation scenario: a combination of stagnation in global economic activity combined with high inflation C19 Pessimistic scenario: a resurgence of COVID-19 pandemic.

Eurozone

Milder-than-expected temperatures in Q1 2023likely prevent a severe energy crisis

The labour market, private consumption and manufacturing have largely remained The global economy is forecast to sresilient going into 2023. The immediate edging close to recession as it crisks of energy shortages and a deep and lingering risks resulting from threcession have been significantly reduced. However, persistent energy uncertainty, ongoing inflationary pressures and further increasing interest rates dampen the outlook and increase the likelihood of recession in 2023.

Inflation in the Eurozone has slowed from its peak in early Q4 2022. The downward trend of overall inflation is expected to continue in 2023 as energy inflation will slow significantly, thereby adding to the improving economic outlook.

The European Central Bank (ECB) signalled that it will continue to raise considerably in 2023, interest rates significantly in Q1 2023 s to face ripple effects to reach a refinancing rate of 2.5%. ar in Ukraine.The Eurozone’s slightly improved growth prospects, labour market tightness and resulting persistence of core inflation have added to the ECB’s determination to sufficiently restrict monetary policy to reduce inflation to the bank’s target of 2%. Yet, this also presents a key recession risk to the Eurozone economy in 2023.

Eurozone Real GDP Growth Baseline and Scenario Forecasts 2020–2026

The MexSEE StateicoWHY Global Econgrowth momentum OVER 3,000 in Q1 2023Mexico’s real GDP growth projection for 2023 was ORGANISATIONS baseline forecast as the counPARTNER The global economy is forconcerns in the US.WITH US

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The State oAPPENDIX

in Q1 2023Global Economic Forecasts use the Euromonitor Macro Model, expert judgement and a synthesis of the views The global economy is forecast to slow consideof other top policy institutions and private edging close to recession as it continues to fsector forecasters. Euromonitor Macro and lingering risks resulting from the war in Model is a global model, with countries simultaneously interacting through trade and aggregate demand spillovers. Forecasts are revised quarterly, with some inter-quarter revisions for key economies.

• All GDP and GDP component growth rates are in real (inflation-adjusted) terms, unless stated otherwise.

• All annual GDP and GDP component growth rates are for the January-December calendar year, unless stated otherwise.

• All quarterly GDP and GDP component growth rates are year-on-year, unless stated otherwise.

• Detailed baseline and scenario assumptions can be found in the full report.

Global EcCONTRIBUTORS

Maxim Hofer
The global economy is forecast Senior Consultant – Economies ing closLinkedIn
Justinas Lasinskas
Senior Consultant – Economies and Consumers
in LinkedIn

Aleksandra Svidler Consultant – Economies LinkedIn

Indre Zebrauskaite
Senior Analyst – Economies and Consumers LinkedIn

ABOUT THE AUTHOR

Lan Ha d LinkedIn

Lan leads Euromonitor International’s economic research, providing global insights and thought leadership on how economic trends are impacting businesses and consumers.

Lan advises clients across a range of industries on the global economic outlook and the impact of economic shifts, helping business leaders make more informed decisions and build long-term strategies.

2023Q1全球经济预测-20页-WN4