According to Munich Re’s Economic Outlook 2023, economic growth in the eurozone and the USA will be weak in 2023. Inflation, while declining in many developed countries, will remain above historical levels over the medium term, according to the report. Inflation will overshoot the targets of the world’s major central banks at least until next year.
However, the negative macroeconomic impact of high inflation on household incomes will be mitigated by relatively stable labor markets and solid employment, Munich Re forecast.
According to the report, global economic growth is expected to be relatively slow this year. However, both the general mood and the published economic data have improved somewhat in recent weeks.
danger of stagflation
High inflation and declining real incomes are having a significant impact on demand for consumer goods, particularly in industrialized countries. Furthermore, the strong recovery in consumption following the COVID-induced recession in 2020 is now coming to a halt.
Munich Re forecast that Europe and the US would likely experience stagflation – almost no economic growth coupled with high inflation. However, relatively resilient labor markets should prevent the economy from slipping into recession, the report predicted. Real growth in the US and the eurozone is expected to exceed 1% next year.
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With growth stagnating in Europe and the US, global economic growth this year will be driven almost exclusively by the emerging markets, with China resuming its role as the engine of growth, Munich Re predicted. However, the impact of an intense wave of COVID-19 and problems in the real estate market continue to dampen economic development in China. While growth should improve somewhat from the 3% level seen in 2022, the projected 4% to 5% growth is still well below past growth rates.
geopolitical tensions
Russia’s invasion of Ukraine in 2022 fueled fears that Europe’s natural gas supplies would be constrained and a deep recession looming. Munich Re reports that these fears have not yet been confirmed. However, the impact of last year’s record energy prices will continue to affect growth and inflation rates this year, particularly in Europe.
In addition to the war in Ukraine, the increasing tensions in the Middle East and between the USA and China also harbor considerable geopolitical risks, said Munich Re.
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