World GDP to grow by 1.4% in 2023, forecast revised again: Fitch Ratings

December 06, 2022: World GDP will likely grow by 1.4% in 2023, revised down from 1.7% in the September 2022 Global Economic Outlook (GEO), says Fitch Ratings in its latest GEO published on Monday.

Fitch has revised the GDP forecast as central banks intensify their fight against inflation and the outlook for China’s property market deteriorates. Accordingly, the rating agency has lowered its forecast for US 2023 growth to 0.2%, from 0.5%, as the pace of monetary policy tightening increases.

“We have also cut our China 2023 growth forecast to 4.1%, from 4.5%, as prospects for a recovery in housebuilding fade,” the report added.

China’s 2022 growth forecast remains at 2.8% as the surge in Covid-19 cases weighs on activity in the near term.

The eurozone 2023 growth revised up slightly to 0.2%, from -0.1%, as the European gas crisis has eased a little, but sharper ECB rate rises will weigh on demand.

“Taming inflation is proving to be harder than expected as price pressures broaden and become more entrenched. Central bankers are having to take the gloves off. That won’t be good for growth,” said Brian Coulton, Chief Economist.

The risk of European natural gas shortages and rationing this winter has receded as LNG imports have surged and gas consumption has fallen. But the crisis is far from over and high wholesale gas prices continue to weigh heavily on firms’ costs and household budgets.

Inflation has exceeded forecasts, recently hitting 11% in the eurozone and UK, and core inflation is rising. Increasing services inflation is offsetting the benefits of easing supply-chain pressures.

Labor market imbalances are not improving as unemployment remains low and vacancies are elevated.

With tight labor market conditions, wages are chasing prices and are growing at 7% in the US, 6% in the UK, and, on some measures, at above 5% in the eurozone.

Fitch expects headline inflation to fall significantly in 2023 as food and energy prices stabilize but the core inflation pressures are expected to be more persistent.

The Fed, ECB, and Bank of England (BOE) have recently been raising rates in outsized moves. The latest forecasts for the peak in Fed rates at 5% and ECB at 3% have been revised up by 100bp since September. The latest 4.75% peak forecast for the BOE has been revised up by 150bp since the previous GEO. The rating agency does not anticipate a pivot to rate cuts until 2024.

The impact of monetary tightening on the economy is already visible, particularly in housing markets but broader effects on demand and job markets will become more apparent over time.

Recessions are anticipated in the eurozone and UK starting in late 2022 and in the US in 2Q23 and 3Q23. Unemployment is likely to rise to above 5% in the US and UK in 2023.

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