Global | The economy in 2023: the spotlight will remain on inflation

Summary

Unusually and unexpectedly high inflation has been one of the most analyzed and discussed topics in 2022. Its causes and consequences have been at the very heart of the economic debate. And although its determining factors have not yet been unequivocally identified, its effects are already visible.

Key points

• Key points:
• In the absence of further shocks, inflation is set to slow down in 2023. "Green shoots" have started to appear in recent months, in line with the normalization of global value chains and lower commodity prices.
• While these trends are set to remain in place ahead, price dynamics will benefit from favorable statistical effects: significant price increases at the beginning of 2022 will create positive base effects, which will allow for a reduction in annual inflation over the following months.
• Average inflation could be around 4% in the United States and 6% in the eurozone next year, below the 8% observed in both geographies in 2022. By the end of 2023, inflation would be close to 3% in both regions, but still above target. Similar dynamics are likely in most other economies.
• Turning to central banks, the Federal Reserve and the European Central Bank are expected to raise benchmark rates to at least 5.0% and 3.75%, respectively, in the coming months and then keep them unchanged until at least the end of 2023.
• Despite the relative strength of private consumption, the ongoing monetary tightening will most likely end up reducing growth and eventually contribute to short and mild recessions, at least in the United States and Europe.

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