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Global Economics Intelligence executive summary, July 2023

McKinsey & Company | August 21, 2023

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July’s World Economic Outlook Update from the IMF projects global growth to fall from an estimated 3.5% in 2022 to 3.0% in both 2023 and 2024. The report states, “While the forecast for 2023 is modestly higher than predicted in the April 2023 World Economic Outlook, it remains weak by historical standards.” Meanwhile, the IMF expects global headline inflation to fall from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024. It anticipates that underlying (core) inflation will decline more gradually, with forecasts for inflation in 2024 revised upward.

Confidence among consumers has improved, but they remain cautious when considering major purchases. Most countries recorded contraction in consumer spending compared with a year ago, with consumption in China slowing significantly.  Central banks have kept inflation expectations well anchored. In developed economies, inflation is decelerating as producer prices have declined.   In its latest meeting, for the first since last spring, Fed staff have not forecast a recession since they began to increase rates last spring.

In the US, real GDP increased at an annual rate of 2.4% in the second quarter of 2023 (annualized quarter-over-quarter growth. Eurozone GDP expanded by 0.3% in the second quarter, up 0.6% from a year earlier. Across major EU economies, performance was mixed.  China’s GDP in the second quarter expanded by 6.3% year over year (YoY) (4.5% in the first quarter), from a low base in 2022, and reported 5.5% year-to-date growth. Meanwhile, the OECD’s composite leading indicators showed signs of a rebound across economies.

Globally, the manufacturing sector contracted faster in June, with manufacturers either recording a slowdown or accelerating contraction in the business. By contrast, the upturn in services continued in June, although the expansion lost impetus with some visible slowdown.  The labor market remains tight in many countries, with unemployment rates stable across most surveyed economies, although seasonal factors pushed up the rate in India, where unemployment rose to 8.5% in June (from 7.7% in May).

Equity markets in India, Japan, and the US extended gains from June into July, while other surveyed countries remained broadly unchanged (such as Germany and Russia) or recorded further declines (such as China, France, and the UK).  In April, world trade volumes fell 1.4% on a monthly basis (from a drop of 1.9% in March, revised), mainly explained by decreases in emerging economies. 

Finally, the nature of work has been changing since the onset of the pandemic—not only in terms of what people do but also where they do it. 

3 key takeaways from the article

1. According to the Global Economics Intelligence Survey for July 2023, in the advanced economies, the US grew at 2.4% in the second quarter, but European growth is modest. China’s GDP in the second quarter expanded by 6.3% year over year.  
2. Confidence among consumers has improved, but they remain cautious when considering major purchases.  Central banks have kept inflation expectations well anchored. In developed economies, inflation is decelerating as producer prices have declined. 
3. Globally, the manufacturing sector contracted faster in June, with manufacturers either recording a slowdown or accelerating contraction in the business. By contrast, the upturn in services continued in June, although the expansion lost impetus with some visible slowdown.  The labor market remains tight in many countries, with unemployment rates stable across most surveyed economies.  Finally, the nature of work has been changing since the onset of the pandemic—not only in terms of what people do but also where they do it. 

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Topics:  Global Economy, Inflation, GDP, Growth