Stalling or crawling?

By Janet Henry, Global Chief Economist, HSBC

11 January 2023

Video

Global Economics Quarterly

Global growth was more resilient than many feared through the third quarter of 2022. Inflation may have peaked, the pace of central bank rate rises is finally slowing, and financial markets mainly rallied in the final months of the year.

But high frequency indicators, particularly survey data, are sending a very clear message that global growth could stall in early 2023. The slowdown in global goods demand and high inventory levels mean that industrial production and world trade growth look set to head lower. Housing markets globally are already reeling from the impact of higher mortgage rates. We expect this to lead to weaker consumer spending, too.

What happens next in mainland China could be key. Recent announcements of a relaxation of pandemic-related restrictions and a package of measures to stabilise the property market have the potential to support a rebound in growth. However, it’s likely to be a bumpy path, particularly in early 2023, when – based on experience elsewhere – China could see a jump in COVID-19 cases, resulting in a setback in mobility before a more sustained rebound in in-person activities in the course of the year.

If China does grow more strongly than expected, the flip side is that this could throw another curveball at central bankers looking to tame inflation: China’s relative weakness in 2022 was reflected in both lower oil demand and trading partners’ import prices.

In fact, we do expect inflation in many places to slow from very high levels in the coming months. It could even continue to surprise markets on the downside in the US in the near term, helped by the fall in oil prices and heavy discounting in goods prices.

But over the medium and long term, we expect inflation to take longer to return sustainably to a 2% target than implied in central bank forecasts, with structural factors keeping it persistently higher than desired. Wage growth typically lags inflation, especially when labour markets are tight. The behaviour of wage-setters – companies and employees – will be under close scrutiny from policymakers in the coming months.

The behaviour of wage-setters – companies and employees – will be under close scrutiny from policymakers.

Against this backdrop, we think major central banks are likely to continue to tighten policy in the early months of 2023. We expect a further raise from the US Federal Reserve and – unlike some in the financial markets – we do not expect the Fed to cut rates in 2023. And in Europe, we see the European Central Bank continuing to raise rates through most of the recession before an extended pause.

Where does all of this leave our forecasts? Our global GDP forecast for 2023 of 1.8% are broadly unchanged from three months ago, thanks to more resilient demand in the US and eurozone in the second half of 2022, and despite downward revisions to China and India. We think growth will improve but remain lacklustre in 2024 with an average rate of 2.4%. The outlook for developed economies is particularly muted: we see them growing at an average of 0.5% in 2023, then crawling back to just under 1% in 2024.

Our global inflation forecasts, meanwhile, have barely changed. We forecast global inflation of above 6% in 2023 and above 4% in 2024.

Overall, the growth-inflation trade-off we see is worse than pre-pandemic and that seemingly priced in by financial markets – or, indeed, reflected in most central bank published forecasts.

First published 4th January 2023.

Would you like to find out more? Click here* to read the full report (you must be a subscriber to HSBC Global Research).

To find out more about HSBC Global Research or to become a subscriber get in touch at askresearch@hsbc.com.

* Please note that by clicking on this link you are leaving the HSBC Global Banking and Markets website, therefore please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.

Note: this page was updated on 10 January 2023 to reflect changes to forecasts, including the 2023 global GDP growth forecast of 1.8% (previously 1.9%).

Disclosure appendix

The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Janet Henry, James Pomeroy

This document has been issued by the Research Department of HSBC.

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis or act as a market maker or liquidity provider in the securities/instruments mentioned in this report. Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues.

Whether, or in what time frame, an update of this analysis will be published is not determined in advance.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.

Additional disclosures

This report is dated as at 4 January 2023.
All market data included in this report are dated as at close 3 January 2023, unless a different date and/or a specific time of day is indicated in the report.
HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.

Disclaimer

This document has been issued by HSBC Bank plc, which has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. Neither HSBC Bank plc nor any member of its group companies (“HSBC”) make any guarantee, representation or warranty nor accept any responsibility or liability as to the accuracy or completeness of this document and is not responsible for errors of transmission of factual or analytical data, nor is HSBC liable for damages arising out of any person’s reliance on this information. The information and opinions contained within the report are based upon publicly available information at the time of publication, represent the present judgment of HSBC and are subject to change without notice.

This document is not and should not be construed as an offer to sell or solicitation of an offer to purchase or subscribe for any investment or other investment products mentioned in it and/or to participate in any trading strategy. It does not constitute a prospectus or other offering document. Information in this document is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on it, consider the appropriateness of the information, having regard to their objectives, financial situation and needs. If necessary, seek professional investment and tax advice.

The decision and responsibility on whether or not to purchase, subscribe or sell (as applicable) must be taken by the investor. In no event will any member of the HSBC group be liable to the recipient for any direct or indirect or any other damages of any kind arising from or in connection with reliance on any information and materials herein.

Past performance is not necessarily a guide to future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors.

This document is for information purposes only and may not be redistributed or passed on, directly or indirectly, to any other person, in whole or in part, for any purpose. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. By accepting this report, you agree to be bound by the foregoing instructions. If this report is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. The document is intended to be distributed in its entirety. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this document.

Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document.

HSBC and/or its officers, directors and employees may have positions in any securities in companies mentioned in this document. HSBC may act as market maker or may have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell or buy securities and may also perform or seek to perform investment banking or underwriting services for or relating to those companies and may also be represented on the supervisory board or any other committee of those companies.

From time to time research analysts conduct site visits of covered issuers. HSBC policies prohibit research analysts from accepting payment or reimbursement for travel expenses from the issuer for such visits.

HSBC Bank plc is registered in England No 14259, is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and is a member of the London Stock Exchange. (070905)

© Copyright 2023, HSBC Bank plc, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of insert issuing entity name. MCI (P) 037/01/2022, MCI (P) 017/10/2021

Global Research
- Macro and rates outlook

Stalling or crawling?

Disclosure appendix

Disclaimer

Global Research

Find out more