International Economic outlook: Global growth outlook remains cloudy and grey

Summary

Forecast changes

Prospects for the global economy have dimmed slightly over the past month, with restrictive monetary policy set to weigh on growth prospects for next year. We forecast global GDP growth of 2.8% for 2023, unchanged from a month ago, while our forecast for 2024 global GDP growth has been revised slightly lower to 2.3%. Downward revisions to our economic outlook for the Eurozone and United Kingdom are the main contributors to our global growth downgrade this month.

We now view Eurozone recession as more likely than not during the second half of 2023. Consumer spending will likely remain sluggish, though it might not soften much further. However, a worsening environment for corporate profits and declining capacity utilization should see investment spending (and overall GDP) fall in the second half of this year. We also forecast only a gradual recovery next year and have lowered our Eurozone 2024 GDP growth forecast to just 0.5%.

We have become less constructive on the prospects for the U.S. dollar, as progress in reducing U.S. inflation suggests the risks are tilted toward earlier rather than later Fed easing. Despite U.S. economic resilience, this should lessen the greenback's near-term gains. More pronounced U.S. dollar depreciation next year is also possible, either amid a mild U.S. recession or a soft landing and lower U.S. yields that sees some loss of safe-haven support for the U.S. dollar.

Key themes

• The trend of underwhelming economic news is becoming broader and more widespread, reinforcing and strengthening our view that the global economy will experience slower growth in 2024. Restrictive monetary policy should continue to weigh on economic activity, while soft sentiment surveys remain consistent with slower growth ahead. In addition to a widespread growth slowdown, the Eurozone, United Kingdom and United States are among the economies we expect to fall into recession.

• Inflation trends have started to slow more noticeably across the major developed economies, though the overall pace of price increases remain too high for G10 central banks to contemplate rate cuts for the time being. However, should favorable inflation news continue over the next several months, rate cuts could be coming more clearly into view by early next year.

• We see potential for pronounced U.S. dollar depreciation as 2024 progresses across a wide range of economic scenarios. The risks appear tilted toward earlier Fed rate cuts, which should weigh on the U.S. dollar over time. Our base case for U.S. recession would reinforce the outlook for a dollar decline. Even a U.S. soft landing, to the extent that it supports broader financial market sentiment, could lessen safe-haven support for the greenback and thus weigh on the U.S. dollar as well.

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