What will the world economy look like in 2023?
This is a question I find particularly intriguing, given the situation in the world right now. There’s inflation on one end, and there’s the Russia-Ukraine war on the other, with the possibility (I honestly do hope not) of a world war. So what can we expect to happen to the world economy in 2023?
Well, things don’t seem to be looking too good.
Seeing how central banks all over the world are hiking interest rates to hedge against inflation, we may be heading toward a global recession in 2023. Sadly, and quite understandably, the most impact will be felt by developing countries and emerging markets.
The United States, one of the world’s three largest economies, intends to increase interest rates by over 4% by the end of 2022. By 2023, that could go up to 5%, almost double what we had before the pandemic. If we experience financial market stress following this interest rate hike, we could see the global GDP slow down to 0.5% in 2023, a 4% decrease in per capita, which meets the technical definition of a global recession.
Also, the global economy is slowing down faster than since 1970, and consumer confidence has declined harder than in the periods heralding previous global recessions.
Seeing how global GDP may decrease following the interest rate hike, it’s safe to say that countries would need to turn their focus from “less consumption” to “more production” in order to hedge against that drop in GDP. In essence, we would need structural reforms rather than a defensive approach to fight against inflation.
But that’s not all. The cost of living is soaring, and prices of commodities are at an all-time high. We would need fiscal policies to restore price stability and alleviate the current cost of living pressures.
Who will lead global economic growth in 2023?
As it seems, the United States isn’t well poised to lead the way in terms of global economic growth in 2023. Rather, the Asia-Pacific region will dominate.
There are already predictions that the Asia-Pacific will achieve up to 3.5% growth in 2023, while other areas, including the US and Europe, may be plunged into a recession. There may also be moderate growth in the Middle East and some parts of Africa.
The recession in the US may be very similar to that of 1990-1991. However, I do expect it to be mild and quickly overturned by the time 2024 rolls in.