TIMESASIANews.com | The 2022 calendar will change soon, this year, various events such as the war in Europe, the event of world countries meeting in football and the Covid-19 lockdown in China have brought the world economy on a sharp gravel-like track.
Then, what about 2023? Is the world economy going through the heavier gravel?
Here are five forecasts for the world economy in 2023 as quoted by Al Jazeera, Thursday (29/12/2022).
1. Inflation and Interest Rates
Inflation is expected to decline globally in 2023 but remains very high. The International Monetary Fund (IMF) predicts global inflation will reach 6.5% next year, down from 8.8% in 2022.
Developing countries are expected to see less of a decline, with inflation only projected to fall to 8.1% in 2023.
“It is likely that inflation will remain higher than the 2 percent that most Western central banks set as their benchmark,” Alexander Tziamalis, senior economics lecturer at Sheffield Hallam University, told Al Jazeera
“Energy and raw materials will remain expensive for some time. A partial reversal of globalization means more expensive imports, labor shortages in many Western countries are making production more expensive, and green transition measures to combat the greatest threats facing our species are all leading to higher inflation than we were used to during the 2010s,” he explained.
2. Recession
While price growth is expected to subside in 2023, economic growth is bound to slow down sharply as interest rates rise.
The IMF predicts the global economy will grow only 2.7% in 2023, down from 3.2% in 2022. The OECD projects underperformance this year with growth of 2.2%, compared to 3.1% in 2022.
Many economists are more pessimistic and believe a global recession is likely in 2023, nearly three years after the downturn caused by the pandemic.
In a piece last month, The Economist’s editor-in-chief, Zanny Minton Beddoes, painted a grim picture summed up by the unequivocal article title: “Why a global recession is inevitable by 2023”.
Even if the global economy does not technically fall into recession, the IMF’s chief economist recently warned that 2023 may still feel like one for many due to a combination of slowing growth, high prices and rising interest rates.
“The three largest economies, the United States (US), China and the euro area, will continue to stall,” Pierre-Olivier Gourinchas said in October. “In short, the worst is yet to come, and for many, 2023 will feel like a recession.”
3. Reopening of China
After three years of strict Covid-19 lockdown and testing protocols, China earlier this month began the process of relaxing its controversial zero-Covid policy after mass protests by citizens. With the ‘draconian’ restrictions at home in hindsight, China’s international borders will reopen from January 8.
The reopening of the world’s second largest economy, which has slowed dramatically over the past year, should inject fresh momentum into the global recovery. The rebound in Chinese consumer demand will provide a boost for major exporters such as Indonesia, Malaysia, Thailand and Singapore.
While the end of restrictions offers relief to global brands from Apple to Tesla who have experienced repeated disruptions under the zero-Covid policy. At the same time, this rapid change carries a lurking risk.
Currently, hospitals across China have been flooded with patients. In addition, morgues and crematoriums were reportedly overwhelmed with the influx of bodies.
Some medical experts estimate that China could see up to 2 million deaths in the coming months. In addition, experts also expressed concern about the emergence of new, more dangerous variants.
“Barring this very disruptive opening, I think the market will do well,” said Natixis Chief Economist for Asia Pacific Alicia Garcia-Herrero.
“I would say once people see the end of the tunnel, so maybe late January, late Chinese New Year, I would argue that’s when the market will really read China’s rapid economic recovery,” he added.
4. Mass Bankruptcy
Despite the economic devastation wrought by the Covid-19 pandemic, bankruptcies have actually declined in many countries in 2020 and 2021, due to a combination of out-of-court arrangements with creditors and heavy government stimulus.
In the US, for example, 16,140 businesses filed for bankruptcy in 2021, and 22,391 businesses did so in 2020. This is lower compared to 22,910 in 2019.
However, that trend is expected to reverse again in 2023 amid rising energy prices and interest rates. Allianz Trade estimates that bankruptcy globally will increase by more than 10% in 2022 and 19% in 2023, surpassing pre-pandemic levels.
“The Covid pandemic forced many businesses to take out big loans, exacerbating the situation of increasing dependence on cheap loans to make up for the loss of Western competitiveness due to globalization,” said Tziamalis.
5. Disrupted Globalization
Efforts to roll back globalization look set to continue in 2023. Since launching under the Trump administration, the US-China trade and technology war has deepened under US President Joe Biden.
In August, Biden signed into law the CHIPS and Science Act that blocked exports of advanced chips and manufacturing equipment to China. It aims to hinder the development of China’s semiconductor industry and strengthen self-sufficiency in chip manufacturing.
The passing of the law is just the latest example of a growing trend away from free trade and economic liberalization towards greater protectionism and self-sufficiency, especially in critical industries related to national security.
In a speech earlier this month, Morris Chang, founder of Taiwan Semiconductor Manufacturing Corporation (TSMC), the world’s largest chipmaker, lamented that globalization and free trade had been in a moribund stage.
“The West, and in particular the US, are increasingly threatened by China’s economic trajectory and are responding with economic and military pressure on the emerging superpower,” said Tziamalis.
“Outright war over Taiwan is highly unlikely but more expensive imports and slower growth for all countries involved in this trade war are almost certain,” he stressed. (cnbc/tans)
