A recent Citi Research report, from a team led by global chief economist Nathan Sheets, offers a global growth forecast for this year and next, with the team’s outlook “soft” but still not a full-blown global recession. The authors note that risks to their forecast are skewed to the downside, but the features of those risks vary notably across major regions, each of which has a distinct and idiosyncratic narrative.
The desynchronized nature of global performance, they observe, is a striking feature of the current global outlook. The team notes that the global economy continues to face multiple headwinds—including high inflation, tight central bank policies, and ongoing geopolitical tensions—but growth has remained resilient.
All told, Citi Research analysts see global growth coming in at 2.4% this year, somewhat below the 3% estimate of trend, and falling below 2% next year as the US and UK potentially fall into recession early and growth in China slows further. They see the first half of next year as the low point for global growth, with the pace of expansion dipping to 1% before picking up in the second half. Excluding China, global growth early next year is seen falling to just slightly above zero.
Global Real GDP Growth Forecasts
© 2023 Citigroup Inc. No redistribution without Citigroup’s written permission.
© 2023 Citigroup Inc. No redistribution without Citigroup’s written permission.
To the authors, the recent performance of global PMIs is broadly consistent with this story. The manufacturing PMI has languished in recessionary territory, a sustained weakness that largely reflects the post-pandemic rotation back toward services, and this weakness has significantly restrained the performance of global goods producers, notably Germany and China.
The services sector looks to be cooling a notch. The authors note that while the global services PMI remains comfortably above 50, it has retreated in recent months, suggesting red-hot services spending may be starting to normalize. This combination—deceleration in the services sector and still-weak manufacturing performance—highlights the challenges that currently plague the global economy.
Still-tight monetary policy should be an important contributor to the expected slowing in global growth. Central banks in both developed markets (DM) and emerging markets (EM) have raised rates aggressively through this cycle, with DM rates approaching their peaks.
The authors expect DM central banks will need to maintain peak rates until sometime next year; the major EM central banks, on the other hand, started hiking rates sooner than their DM counterparts, and several countries are now bringing rates back down. China is an important exception, having recently moved to ease policy, albeit tepidly, in an effort to support its flagging economy.
Risks vary across regions
The authors characterize their baseline outlook as soft but still a notch stronger than a full-blown global recession. They observe that global performance this year has been an upside surprise, one that has prompted them to raise their 2023 projection for global growth by 0.5 percentage point since the end of last year.
But that has not brought a sigh of relief, and the authors remain concerned about fundamental challenges that they see as still in play. That has led them to cut their 2024 growth projections by more than 0.75 percentage point, and they judge that risks to that forecast are probably still skewed to the downside.
Global Growth Forecasts
© 2023 Citigroup Inc. No redistribution without Citigroup’s written permission.
© 2023 Citigroup Inc. No redistribution without Citigroup’s written permission.
The authors offer region-by-region capsules looking ahead:
For more information on this subject, and if you are a Velocity subscriber, please see the full report, first published on 23 August 2023, here: Global Economic Outlook & Strategy: The Surprisingly Desynchronized Global Economy.
Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click here.