The two regions that have been the pillars of the global economy, the European Union and the United Kingdom, are expected to enter a recession this year. This projection is presented by two top international banks, Citibank and HSBC.
Citibank projects that global economic growth this year will only grow at 1.7%. “We estimate global growth will deteriorate for several years in 2023,” Citibank wrote in a report entitled “Wealth Outlook 2023 Roadmap to Recovery: Portfolios to Anticipate Opportunities”, quoted on Sunday (04/09/2023).
The two sources of support for the global economy, the European Union and the United Kingdom will have negative economic growth at -0.5% and -1.0%, respectively.
“Indeed, our 1.7% annualized global growth is likely to be the weakest in forty years beyond the 2009 Global Financial Crisis year and 2020 Covid shutdown year,” the report states.
“Among the major economies, the eurozone and the UK are likely to be the worst out, with full-year contractions of 0.5% and 1% respectively, as they contend with very high energy costs and policy tightening,” he continued.
Meanwhile, China looks to be one step ahead of the US, expected to grow by 4.5%. Amid a weak labor market and real estate crisis, the world’s second-largest economy is already in monetary easing mode.
“After two dismal years, we expect China’s profits to increase as the money supply increases, as do US contracts and money supply profits,” the report said.
On the other hand, the United States (US) economy is predicted to grow by around 0.7%. Citibank reads that the US will likely enter a mild recession, and the unemployment rate may rise beyond 5%. For inflation in 2023, Citibank predicts it will fall but is unlikely to reach pre-Covid levels.
“We see it was dropping to 3.5% by the end of 2023 and 2.5% by the end of 2024, while higher on average over those calendar years,” he explained.
Meanwhile, they assess that other countries in the Asia-Pacific region vulnerable to exposure to global cycles may still experience pressure in 2023, such as Korea, Taiwan, and Australia, where revenues are expected to fall in 2023. Citibank also predicts a commodity boom that Indonesia felt in 2022 will likely fade in 2023.
“Indonesia’s commodity advantage may also fade in 2023,” wrote the report. “That said, the prices of commodities and other goods could fall in 2023 if the US or Europe enter a recession,” he predicts.
In its report entitled “Investment Outlook Q1 2023 Looking for the Silver Lining”, HSBC also predicts a global economic slowdown this year and a downturn in European countries. The UK is even expected to enter into a recession.
Furthermore, even though the US is predicted to be better able to avoid a recession, they read that the US will experience negative economic growth in one to two quarters.
“The Eurozone and the UK are both going into recession, and while the US is more resilient, growth there is also below par, and we may see one or two negative quarters of US growth in 2023,” the report said. 2023).
HSBC sees the possibility that the inflation rate will fall in 2023 in line with slowing economic growth because it considers that various raw material prices have started to decline recently.
“Slower economic growth will gradually cause inflation to fall, and the October US CPI figures fuel hopes in this direction. ” Good news is that oil, natural gas, and transport costs have fallen, and semiconductor shortages are easing,” he wrote.
This decline contributed to lower goods price inflation which we think will continue to subside.
Nevertheless, HSBC sees that several items are likely to remain at high price levels, namely related to rental prices (which are lagging behind house prices) and services, as the still strong labor market drives this.
Meanwhile, HSBC expects the Fed to raise interest rates to 5% in Q1 and stay around that level through 2023 and 2024.
“Thus, even though inflation will fall in 2023, it will unlikely be near the central bank’s target of 2%. That means that central banks are not done with their rate hikes, and many want to keep their rates in the limited territory to ensure an inflationary dragon. Killed,” he explained.
On the other hand, for the commodity sector, HSBC predicts that the momentum of commodity booms such as gold, silver, and oil will slowly start to subside this year.
“Despite the recent rise in commodity prices, we do not expect gold and silver to outperform in the coming months. The recent USD strength has weighed on the two metals, while higher interest rates and bond yields have created losses. Competitive for gold versus being cash and bonds,” the report said.
“Oil prices have been declining since early June, and while we don’t expect it to decline further, we also don’t expect a strong rebound. Global supply is increasing due to increased Russian production, but demand is weaker. Market supply seems adequate for now, so we believe prices will trade sideways in the coming months,” he added.