Atradius has recently upgraded its global GDP growth forecast for 2023 to 2.4%, which is a slowdown from 2022 but a significant improvement on earlier predictions.
In addition, the firm posted a global GDP growth forecast of 2.0% for 2024.
“We predict that global trade growth will slow to 1.9% in 2023, from 3.2% in 2022, with a slight recovery in 2024 to 2.5%,” the firm noted. “Our forecast is in line with the prediction that the relationship between trade growth and GDP growth has settled to 1:1.”
Inflation passes its peak
According to Atradius, there are a number of reasons for cautious optimism despite the revised global GDP growth forecast.
When China finally removed Covid restrictions, it did so quickly and completely, providing a significant boost to world trade, the firm pointed out.
At the same time, in part thanks to generous government support, the US and eurozone both proved relatively resilient in the face of high energy prices, which are now coming down, the firm added.
Rocketing energy prices were one of the factors behind spiking inflation rates in a number of major economies, Atradius said.
But the firm believes that inflation has now passed its peak and will continue to fall through 2024.
Central banks have been raising interest rates to curb prices, and that will gradually take effect over the coming months, the firm observed.
Emerging economies fare better
While these are positive indicators, Atradius said that the global economy is walking a tightrope.
A misstep either way could plunge some economies into a new inflationary spiral and others into recession, the firm warned.
China, for example, has recently slipped into deflation as its recovery falters, the firm added.
Other economies are struggling to find the right balance between monetary tightening and economic growth, Atradius observed.
Rising interest rates curb inflation but dampen economic activity and increase borrowing costs for business, the firm added
“For these reasons we expect global GDP growth in advanced economies to remain at an anaemic 1.3% in 2023, falling to 0.6% in 2024,” said Atradius. “Emerging market economies (EMEs) will fare better, with forecast growth of 3.9% in 2023 and 3.8% in 2024. Asia will be the chief contributor to that total, with Latin America lagging some way behind.”
This is the most likely scenario but it isn’t the only possibility, Atradius noted.
In the US and eurozone especially, core inflation (excluding energy and food) has proved stickier than expected, the firm said.
If it stays well above targets, central banks may be tempted to raise interest rates further, as the Bank of England has recently done, the firm said, adding that could drive growth into negative territory.