2023 is likely to see weaker growth globally. Maybe less inflation and an end to rate hikes. U.S. may escape a recession while Europe contracts and Asia has green shoots for growth. Morgan Stanley believes global GDP growth will top out at just 2.2%.
Global inflation is set to peak in the fourth quarter of 2022. Slowing demand, price discounts due to elevated inventories and declining housing prices, among other factors, will help temper inflation.
The combination of slowing growth and cooling inflation is likely to prompt the Fed to curb its rate hiking. The target range to reach a peak of 4.5% to 4.75% by January 2023, and then decline steadily throughout 2024. In this scenario, the U.S. economy should experience a soft landing and a tepid rebound. In the labour market, companies have slowed hiring, lean payrolls and there is difficulty in filling skilled positions.
Source: Bloomberg,
Haver Analytics, Morgan Stanley Research forecasts
The euro area economy may contract 0.2% in 2023 on the back of the ongoing energy crisis and tightening monetary policy. Inflation—which surged to an unprecedented annual rate of 10.7% in October 2022 — is expected to remain well above target for the remainder of 2022 as well as 2023.
Asia’s outlook for the year ahead is relatively upbeat, with three of the world’s largest economies helping to lead the way. Here’s a look at what’s ahead in the region:
• In China, recovering private consumption could lead the economy to a modest recovery next year. A 5% growth in 2023 is achievable with most of that coming in the second half of the year. This represents a significant improvement from 3.2% growth for China in 2022.
• In Japan, a well-developed economy and aging population have kept growth relatively tame. Forecast is 1.2% GDP growth for 2023
• In India, the real outlier, GDP is on track to expand 6.2% in 2023 and 6.4% in 2024, while three megatrends, underpinned by the country’s advanced digital infrastructure, are putting India on a path to surpass Japan and Germany and become the world’s third-largest economy by 2027.
Malaysia’s GDP growth will moderate to +4.2% for 2023. The softening growth will be mainly due to a deceleration in external trade performances as a result of slower global demand. Malaysia will continue to benefit from commodity exports especially palm oil, petroleum, and LNG as the average prices of CPO and Brent crude oil are forecasted to stay elevated at RM3,500 per tonne and USD96pb for 2023. Agriculture and mining sectors are to record an expansion rate of +1% each while manufacturing output is to grow modestly by +3% for 2023.
The domestic economy will be fuelled by continuous upbeat consumer spending, further improvement in tourism-related activities, and revival of infra projects. Food inflation as well as overall price growth to trend lower following moderation in global commodity prices and a further easing in tight supply chain pressure. CPI is forecasted at +2.3% (2022E: +3.0%). The Ringgit is projected to appreciate to RM4.30 or higher with right policies from the Unity Government. Consumer spending in Malaysia is to stay steady underpinned by a stable inflation rate and the jobless rate is set to decline further to 3.5% (2023). In addition, the trajectory of BNM monetary policy remains supportive of domestic spending and investment activities. The services and construction sectors may grow by +5.3% and +4.8% for 2023 respectively.
With this new government, political temperature will come down, reduce uncertainties, improve market sentiments, and smoothen policy implementation. However, there are risks of political instability in the next five years especially if one of the major political blocs were to leave the government.
External trade is still on positive growth. A slight moderation in the export growth forecast from +28.7%yoy for 2022 to +9.2%yoy for 2023 is anticipated.
In the above context, it is only for us to lose if we choose to have instability and poor economic policies. Otherwise, we are on the road to a dynamic, vibrant 2024 (while 2023 will set the stage for it).
Disclaimer: All the projections above were from Morgan Stanley and MIDF and we are not responsible for any shortfall, misgivings or inaccuracies thereto.
References:
2023 Global Macro Outlook: Inflation peaks, growth slows, Morgan Stanley,
22 November 2022
Malaysia’s economic outlook 2023: MIDF, Business Today, 7 December 2022
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