The global economy may show signs of recovery, but the road ahead is paved with challenges. Despite the progress made, the OECD’s latest Economic Outlook predicts a weak rebound, with global GDP growth expected to moderate from 3.3% in 2022 to 2.7% in 2023. (source: OECD.org)
However, according to Kavan Choksi, there is cause for cautious optimism as lower energy prices relieve struggling households, and business and consumer confidence are slowly rising.
Additionally, the re-opening of China’s economy has greatly boosted global activity. While the challenges remain significant, the modest growth projections in the Economic Outlook offer a glimmer of hope for the future of the global economy.
While headlines about inflation continue to dominate global financial news, projections of declining inflation are providing some relief to investors. According to recent reports, the Organization for Economic Co-operation and Development (OECD) predicts that headline inflation in their member countries will decrease from 9.4% in 2022 to 6.6% in 2023 and 4.3% in 2024.
Kavan’s positive outlook is based on several factors, including tighter monetary policy, lower energy and food prices, and reduced supply bottlenecks. Interestingly, the projected decline in inflation is expected to contribute to a pick-up in GDP growth in certain regions.
For example, lower inflation rates in the Eurozone are expected to help boost real incomes and lead to GDP growth of 1.5% by 2024. The report also revealed that China is expected to witness strong increases in GDP growth in the coming years, thanks to the lifting of the government’s zero-COVID policy.
The global economy has been facing some challenges in recent years, and the latest projections suggest that growth will continue to slow down. According to the World Economic Outlook, global growth is estimated to fall from 3.5 percent in 2022 to 3.0 percent in 2023 and 2024.
While this forecast is slightly better than predicted earlier this year, it’s still weak compared to historical standards. One of the main factors affecting economic activity is the rise in central bank policy rates to combat inflation.
As a result, global headline inflation is expected to decrease from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2 percent in 2024. However, this decline may not be enough since underlying inflation is expected to decline more gradually. The latest projections indicate that there’s still a lot of work to be done before the global economy returns to a sustainable growth trajectory. (source: International Monetary Fund)
Recent actions taken by authorities to contain turbulence in US and Swiss banking, along with the resolution of the recent US debt ceiling standoff, have significantly reduced immediate risks of financial sector turmoil.
Kavan explains while this has helped to moderate adverse risks to the outlook, the balance of risks to global growth remains tilted to the downside. Inflation may continue to rise if further shocks occur, including the intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy.
The possibility of financial sector turbulence resuming as markets adjust to further policy tightening by central banks cannot be ruled out. Additionally, China’s recovery could slow down due to unresolved real estate problems, which could have negative cross-border spillovers.
Despite these challenges, there is still a possibility that inflation could fall more significantly than expected, resulting in a reduced need for tight monetary policy, and domestic demand could prove more resilient, which could lead to positive growth outcomes.
Central banks play a crucial role in maintaining the stability of economies worldwide. The common priority among economies is to achieve sustained disinflation while ensuring financial stability. Kavan says central banks must remain focused on restoring price stability and strengthening financial supervision and risk monitoring.
They must build fiscal buffers and ensure targeted support for the most vulnerable. At the same time, improvements to the economy’s supply side would facilitate fiscal consolidation and a smoother inflation decline toward target levels.
In case of market strains, countries must be ready to provide liquidity promptly without running the risk of moral hazard. With these measures, economies can thrive in a stable and predictable environment.
The economic upturn may not be as sturdy as we had hoped, and risks seem to be leaning toward the downside. The uncertainty surrounding Russia’s aggressive actions towards Ukraine and its potential global impact is a cause for concern. This year, we experienced some beneficial circumstances that aided in reducing energy demand, such as the mild winter in Europe.
However, we cannot guarantee that these conditions will be repeated next year. One of the biggest issues persisting is inflation, which isn’t easy to tame. This is partly due to strong service price hikes and increased profits in some areas.
Kavan notes that the higher interest rates implemented across the economy to combat inflation may threaten financial stability and cause further vulnerabilities, especially in countries with high debt. Policymakers must take action to lower inflation, adjust fiscal policies, and promote sustainable growth. It won’t be easy, but economic well-being needs to overcome these challenges.
Fiscal policy is critical in promoting sustainable economic growth and enhancing living standards. The Organization for Economic Co-operation and Development (OECD) Chief Economist Clare Lombardelli emphasizes the importance of public investment in productivity-enhancing measures such as green initiatives, improvements to labor supply, and skill development.
To further support growth, private investment, and productivity must be reignited through labor and product market reforms. The OECD’s Outlook report also sheds light on the importance of women’s economic empowerment, suggesting policy changes focusing on flexible work arrangements, tax and benefit disincentives, and childcare provisions. The report highlights that women must have equal opportunities to remove structural barriers and discrimination and boost long-term economic well-being and prosperity.
In conclusion, as the global economy continues to recover from the effects of the pandemic and the war in Ukraine, there is a sense of cautious optimism. However, now is not the time to relax and ease up on the restrictive monetary policies that have helped prevent runaway inflation.
Kavan points out that until there are clear signs that inflationary pressures have been reduced, we must remain vigilant and exercise prudence and restraint. At the same time, fiscal support must be scaled back and redirected toward future needs.
With the recent increase in minimum wages, welfare benefits, and falling energy prices, it is time to withdraw broad energy-related support and focus on more targeted assistance that can have a lasting impact. By taking these steps, we can ensure a more stable and sustainable economic recovery for all people.
Kavan Choksi is a successful investor, business management, and wealth consultant. Working strategically with companies across fast-moving consumer goods, retail, and luxury markets — he leverages his vast experience to help clients turn around and revitalize their businesses.
With his expertise in economics and finance, Kavan has developed a passion for investing over the years and enjoys helping others do more with their money.
He provides thoughtful commentary to publications such as CNBC, Fox Business, Forbes, Business Insider, CEOWORLD Magazine, International Business Times, Financial Express, and The Epoch Times. Kavan is also a regular contributor to Nasdaq, where he shares his expert insights on what’s moving markets and the global economy.
