Global Economics Intelligence executive summary, December 2023

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Global Economics Intelligence executive summary, December 2023

By Jeffrey Condon | McKinsey & Company | January 22, 2024

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The latest McKinsey Global Survey on economic conditions finds that geopolitical instability is viewed as the top threat to economic growth by respondents. Earlier optimism about the global economy—and respondents’ own companies’ workforce growth and profits—has receded somewhat; nevertheless, respondents maintain a largely positive view about their own economies. At the same time, concern over high interest rates has almost halved from earlier in 2023: 18% of respondents now cite inflation as a risk to growth compared with 34% in March. In this latest survey, just 32% of respondents expect a rate hike in the next six months (versus 60% in March), with 40% believing their country’s rates will hold steady.

November saw inflation continue to decline in developed economies after a period of high inflation. The inflation picture across emerging economies is looking increasingly diverse.

Commodity prices continued to fall in December, with the exception of precious metals. Overall, energy prices maintained an upward trend over recent months, whereas prices for industrial metals have seen a decline, mostly driven by lower demand from China’s construction sector. Food prices, meanwhile, are trending down, although levels are similar to 2011’s period of high inflation.  This month again saw interest rates unchanged across the developed economies. 

There was a varied growth picture across the developed economies, with the US appearing somewhat buoyant while Europe looked subdued. The Fed projects the US economy to expand by 1.4% for 2024. The eurozone experienced a third-quarter 2023 contraction (of 0.1% quarter over quarter), the main contributor being a change in inventories. The UK economy unexpectedly contracted in October, with all three main sectors reporting declines in output.  The picture was more consistently positive across the developing economies, with India being the standout: India’s real GDP has surprised many by clocking an impressive growth of 7.6% year-on-year in the July-to-September quarter. China’s industrial output growth accelerated to 6.6% year over year in November (4.6% in October). In the third quarter, Brazil’s GDP rose 0.1% compared with the previous quarter and climbed 2.5% year over year. According to flash estimates, Russia saw annual growth increase to 5.5% in the third quarter, from 4.9% in the second quarter.  Overall, across surveyed economies, the manufacturing sector has shown contraction for the 15th month in a row, while services momentum decreases.

3 key takeaways from the article

1. The latest McKinsey Global Survey on economic conditions finds that geopolitical instability is viewed as the top threat to economic growth by respondents. Earlier optimism about the global economy—and respondents’ own companies’ workforce growth and profits—has receded somewhat; nevertheless, respondents maintain a largely positive view about their own economies. At the same time, concern over high interest rates has almost halved from earlier in 2023
2. There was a varied growth picture across the developed economies, with the US appearing somewhat buoyant while Europe looked subdued. The picture was more consistently positive across the developing economies, with India being the standout.
3. Overall, across surveyed economies, the manufacturing sector has shown contraction for the 15th month in a row, while services momentum decreases.  Equity markets continued to grow in December, with the exception of China and Russia.

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Topics:  Global Economy, Inflation, Interest Rate, GDP, Unemployment