Global Economics Intelligence executive summary, September 2023

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Global Economics Intelligence executive summary, September 2023

By Jeffrey Condon et al., | McKinsey & Company | October 20, 2023

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Overall, consumer confidence remained broadly stable across McK surveyed countries but still leaned toward saving rather than spending—although confidence dipped in China. In Brazil, consumer confidence rose to 96.8 in August, up from 94.8 in July—the highest reading since February 2014. Russia is somewhat of an outlier among our surveyed economies: domestic consumer demand remains robust, fueled by growth in real wages and consumer credit, which in July was up by 11% since the start of the year.  Core inflation has been on a downward trend in the US, standing at 4.3% for the 12 months ending August 2023 (4.7% July 2023)—and significantly down from the September 2022 figure of 6.6%.  Eurozone inflation is expected to be 4.3% in September 2023, down from 5.2% in August 2023. In the UK, consumer price index (CPI) inflation unexpectedly fell to 6.7% in August. Inflation is resurgent in Russia, affecting both consumers and producers; it is declining in India after recent increases and remains close to 0% in China. Oil prices surged to $85–90 per barrel amid OPEC’s extension of oil production cuts, whereas food prices are continuing the downward trend that began in 2022.

In August, central banks in the eurozone, Russia, and the UK raised interest rates, whereas Brazil’s central bank reduced interest rates for the first time since 2021 in July. The eurozone and Russia raised interest rates again in September, with the European Central Bank (ECB) hiking its key interest rate by 25 basis points to 4.5% on September 14 and rates in Russia reaching 13.0%.

The buoyancy of India’s economy contrasts with other surveyed countries. The economic activity index for the second quarter of 2023 nowcasts growth of 6.6% in India versus real GDP growth of 7.8% in the first quarter. Meanwhile, annual average real GDP growth in the eurozone is expected to slow from 3.4% in 2022 to 0.7% in 2023 before recovering to 1.0% in 2024 and to 1.5% in 2025. By contrast, in the emerging economies, China’s industrial output growth accelerated to 4.5% year-on-year in August (3.7% in July), while Russia’s economy is expected to continue to grow this year by around 2.0–2.5%, with quarterly growth likely to slow toward the end of the year. 

Manufacturing has been contracting for the past 12 months, while the services sector has experienced a noticeable slowdown. In the world of manufacturing, emerging markets are expanding, while developed markets remain in the contraction zone.

Unemployment rates remain stable across most surveyed economies, with slight decreases in Brazil and India and a small increase in the US, where the rate rose to 3.8%, slightly higher than July’s 3.5% . The UK’s unemployment rate for May–July 2023 increased by 0.5 percentage points during the quarter to 4.3%. In China the surveyed urban unemployment rate ticked down to 5.2% in August.

Equity markets turned in a mixed performance in September; after a “red” August, some markets made gains, while others still struggled to grow. For US equities in August, year-to-date returns for the S&P 500 and Dow Jones were respectively down to 14.0% and up to 10.2%. Across the Atlantic, European equities have been stable throughout 2023.

Data from World Trade Monitor indicates that world merchandise trade was down 0.6% in July 2023 compared to June, which also saw a 0.6% drop. July’s decrease was largely driven by a drop in trade for China. Across countries, exports rose for the US and Russia but fell for China, Brazil, and the eurozone, while imports increased for the US, Russia, and Brazil but fell for China. Data from the flash forecast (August 31) for the Container Throughput Index saw overall container trade decline across all regions.

Looking ahead, respondents in Europe are much less likely now than in March and June to expect improvements in their countries’ economies and are currently the least optimistic group across regions. India and North America respondents have become more hopeful about the months ahead.

Perceived top economic risks have shifted since June’s survey, as the threat of rising interest rates fades. Today, respondents—especially in Asia–Pacific—are keeping a close watch on economic activity in China. China’s slowing economic activity is the second-most-cited risk to the global economy—with 41% of respondents registering it as a concern—and also one of the top five most-cited risks to respondents’ home countries. Respondents in Greater China, meanwhile, now highlight uncertainty in the real estate sector most often as a threat to their economy. Additionally, geopolitical instability and inflation remain two of the most frequently cited risks both to the global economy and to respondents’ home countries.

3 key takeaways from the article

1. The buoyancy of India’s economy contrasts with other surveyed countries. Annual average real GDP growth in the eurozone is expected to slow. By contrast, in the emerging economies, China’s industrial output growth accelerated to 4.5% year-on-year in August, while Russia’s economy is expected to continue to grow this year by around 2.0–2.5%.
2. Perceived top economic risks have shifted since June’s survey, as the threat of rising interest rates fades. China’s slowing economic activity is the second-most-cited risk to the global economy. Additionally, geopolitical instability and inflation remain two of the most frequently cited risks both to the global economy and to respondents’ home countries.
3. Looking ahead, respondents in Europe are much less likely now than in March and June to expect improvements in their countries’ economies and are currently the least optimistic group across regions. India and North America respondents have become more hopeful about the months ahead.

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Topics:  Global Economy, Global Trade, Risk