Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining.
Economic growth proved surprisingly resilient in the third quarter of last year, with strong labour markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe. Inflation, too, showed improvement, with overall measures now decreasing in most countries—even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.
Elsewhere, China’s sudden re-opening paves the way for a rapid rebound in activity. And global financial conditions have improved as inflation pressures started to abate. This, and a weakening of the US dollar from its November high, provided some modest relief to emerging and developing countries.
Accordingly, we have slightly increased our 2022 and 2023 growth forecasts. Global growth will slow from 3.4 per cent in 2022 to 2.9 per cent in 2023 then rebound to 3.1 per cent in 2024.
For advanced economies, the slowdown will be more pronounced, with a decline from 2.7 per cent last year to 1.2 per cent and 1.4 per cent this year and next. Nine out of 10 advanced economies will likely decelerate.
US growth will slow to 1.4 per cent in 2023 as Federal Reserve interest-rate hikes work their way through the economy. Euro area conditions are more challenging despite signs of resilience to the energy crisis, a mild winter, and generous fiscal support. With the European Central Bank tightening monetary policy, and a negative terms-of-trade shock—due to the increase in the price of its imported energy—we expect growth to bottom out at 0.7 per cent this year.