The global economy is showing signs of improvement, with economists upgrading their previously gloomy outlooks. Last week, data releases revealed a slowdown in inflation and less severe downturns in activity. This prompted Barclays to raise its global growth forecast to 2.2% in 2023, an increase of 0.5 percentage points from its last estimate.
China’s reopening and positive data surprises have played a significant role in this upgrade, with Barclays increasing its China growth prediction to 4.8%. Additionally, the Euro area, the US, Japan, and the UK have all seen upgrades in their growth forecasts. Although the US is still expected to experience a recession, it is predicted to be quite shallow.
In the US, December’s Consumer Price Index (CPI) edged down 0.1% month-on-month, reaching 6.5% annually. This was in line with expectations and primarily driven by falling energy prices and slowing food price increases. However, a more important gauge of the US economy’s performance is the December Atlanta Fed Wage tracker, which indicated a sharp deceleration of wage pressures.
Federal Reserve officials have also weighed in on the matter, with Philadelphia Fed President Patrick Harker stating that 25 basis point interest rate hikes would be appropriate moving forward. The central bank has been raising rates aggressively to rein in inflation while hoping to engineer a soft landing for the economy. Barclays believes that the balance on the Federal Open Market Committee has now shifted toward 25 basis point increments from February’s meeting onward.
In Europe, sticky core inflation in the Euro area will keep the European Central Bank on track to deliver its two telegraphed 50 basis point hikes in February and March before ending its tightening cycle at a deposit rate of 3%. In the UK, inflation has proven more persistent and the labor market remains tight, prompting economists to warn of potential second-round inflationary effects.
