As 2022 draws to a close, the global economy has continued to decline, but not as drastically as economists had initially anticipated, raising the prospect that the world economy may not experience a severe downturn in 2019.
The main economies in the U.S. and Europe experienced output drops in November, according to business surveys issued on Wednesday. In spite of high inflation and rising interest rates, several aspects of both economies continue to exhibit resilience, according to the data and other economic indicators.
The situation is quite dubious in China, the nation with the second-largest economy in the world, as a result of an increase of Covid-19 cases. As Beijing tries to relax its strict epidemic regulations, many anticipate that growth will pick up in 2019.
The fundamental driver of the economy, consumer spending, is supported by the tight labour market in the United States and the still robust household balance sheets. Retail sales were boosted by a strong consumer in October, and this trend may continue through the end of the year in the largest economy in the world. The Federal Reserve’s interest-rate rises are intended to reduce inflation, which is close to a 40-year high and are a factor in how the United States will fare against them.
Russia’s decision to restrict energy supply has caused less economic impact in Europe than initially anticipated, according to economists. According to Adam Posen, president of the Peterson Institute for International Economics, many households and companies in the area are adjusting by, for example, using less energy. In order to help consumers deal with rising energy and food prices, he noted, European governments also provided households with larger-than-anticipated amounts of fiscal support. More than 75% of the global economy will eventually be performing reasonably well, according to Mr. Posen. The United States and the European Union “are likely to experience very mild recessions that don’t last very long, and they could resume growth as early as the fourth quarter of 2023.”
Many developing nations are still lagging behind. David Malpass, the president of the World Bank, had issued a warning that policies taken by industrialised economies to combat inflation and the global economic slowdown could leave less cash available for developing countries. Surveys of buying managers at European businesses, which revealed another month of decreased activity in November, made clear the financial consequences of increasing energy prices. S&P Global reported that although the eurozone’s composite production index increased to 47.8 in November from 47.3 in October, it remained below the 50-point threshold that separates a contraction from an expansion.
The future for the world economy is still somewhat hazy. How soon inflation declines is one of the main issues in the United States. The rate at which it does so will influence how high and for how long the Fed raises interest rates. This year, the central bank increased interest rates at the quickest rate since the 1980s. Numerous experts predict that increasing borrowing prices will reduce spending more severely in the upcoming months, endangering U.S. GDP.
According to minutes of the policy makers’ November 1-2 policy meeting, the Fed staff viewed a U.S. recession next year as “nearly as plausible” as their baseline prediction of slow growth early this month. Due to the tightening of financial conditions that had happened this fall, that represented a downgrading of the economic outlook.
S&P Global reported that the U.S.’s composite output index, which measures both manufacturing and service activity, fell to 46.3 in November from 48.2 the previous month, one of the fastest declines since 2009. An index below 50 indicates declining economic activity, whereas one above 50 indicates expansion.
According to Chris Williamson, chief business economist at S&P Global Market Intelligence, “companies are reporting significant headwinds from the rising cost of living, tightening financial conditions—notably higher borrowing costs—and weakening demand across both home and export markets.”
However, American businesses indicated that November saw a reduction in inflationary pressures as a result of falling material and shipping costs.
The economies of Europe will experience the toughest economic challenges in the coming months. One of the last remaining channels for Russian gas to reach Europe was threatened on Tuesday when the Russian natural gas giant Gazprom PJSC vowed to further restrict deliveries to Europe via Ukraine starting next week.
The predicted recovery in GDP in China for the upcoming year depends on a relaxation of Covid-19 limitations, but the recent spike in infections raises concerns about how quickly that may happen.
According to Magdalene Teo, head of fixed income research for Julius Bär in Asia, “This fine-tuning of its Covid-19 policy is now being tested as cases continue to grow, especially in its manufacturing heartland of Guangzhou.” “China is recognising it won’t be simple to reopen this winter.” Numerous experts anticipate a 2% increase in global output in 2019. That would represent a severe slowdown from this year and well below the 3.3% average seen in the ten years before to the Covid-19 outbreak, but it would still result in a modest increase in output per person.
In real words, this means that the misery that many countries, companies, and consumers have had this year—with notable regional variations—is still ongoing.
Next year, the United States is predicted to make just modest increases. The United States’ economic production is predicted by the Organization for Economic Cooperation and Development to expand at a 0.5% annual pace in 2023, down from a projected 1.8% in 2022. According to the Wall Street Journal’s survey of economists, the U.S. gross domestic product will expand at an annual rate of 0.4% in 2023, and there will likely be a recession the following year.
It appears that Europe will avoid the harshest effects of energy interruptions. Energy rationing in Europe’s factories is less likely thanks to a mild October and ample gas reserves. As a result, Barclays economists predict a 1.3% reduction in the country’s gross domestic product, which is less than their worst-case forecast of a 5% decline.
Economists cautioned the global economy is in a fragile position, despite the possibility that things might start to improve next year.
Alvaro Pereira, acting chief economist at the OECD, stated that “the risks that things could go wrong are increasing compared to where they were in the previous few months.”
Write to Sarah Chaney Cambon at sarah.chaney@wsj.com and Paul Hannon at paul.hannon@wsj.com.
Amendments & Clarifications
Also published was a survey of participants in the European Round Table for Industry. It was incorrectly referred to as the European Round Table of Industrialists in a previous version of this article. (Revised on November 23.)
Economists are hesitant to predict a global recession, even with a weak start to 2023 anticipated in many of the richest nations in the world.
Despite the fact that we do not officially predict a global recession from a strictly technical standpoint, Marcelo Carvalho, global head of economics at BNP Paribas, predicted that a significant portion of the global economy would experience one.