Caution about growth outlook warranted
- Global: GDP growth is likely to slow to 2.9% this year (broadly in line with our previous estimate of 2.8%) and 2.5% next year (from 2.7%). The deceleration largely reflects the lagged effects of tighter monetary policy amid depleted household savings buffers and reduced support from fiscal policy. Headline inflation has declined considerably from its peak, mainly due to energy prices, but core inflation is falling too thanks to lower inputprice pressure. The recent rise in oil prices is unlikely to prevent further disinflation as aggregate demand softens. Policy rates in most advanced economies have likely reached their peak, but rate cuts will probably have to wait until data-dependent central banks see clear evidence that core inflation is moving sustainably down towards their targets.
- US: We are raising our GDP forecast for this year to 2% (from 1.3%) while still expecting a mild recession at the turn of the year and flat annual growth for 2024. The recent strength of personal consumption is unlikely to last amid much tighter credit conditions, a softening labor market, a reduced household savings buffer and the resumption of student-loan repayments. We expect headline inflation to ease to around 2% by the end of next year, with core inflation slightly above 2%. We think the Fed’s hiking cyc le has reached a peak and have penciled in 150bp of rate cuts for next year, starting in March.
- Eurozone: GDP is likely to stagnate, at best, in 2H23, down from our previous forecast of moderate expansion. While our growth projection for this year remains at 0.5%, the carryover lowers the forecast for 2024 to 0.6%, from 1.0%. Compression of corporate profit margins amid weakening demand seems to have started and will probably continue. This is likely to challenge the resilience of the labor market. We expect inflation to average 3.5% in 4Q23 and to fall back to the ECB’s 2% target by the end of 2024. The ECB’s tightening cycle has likely come to an end. We continue to expect the first rate cut in mid-2024.
- CEE: We forecast EU-CEE economies1 to grow by 0.8% in 2023 amid destocking and weak private consumption, re-accelerating to 2.7% in 2024 if domestic demand rebounds due to real wage growth and the beginning of postponed capex projects. The Turkish economy might grow by 4.3% in 2023 and 3.4% in 2024 as the fiscal impulse wanes and financial conditions tighten. Russia’s better-than-expected performance in 2023 could be followed by a year of no growth. Except for the NBH, we do not expect EU-CEE central banks to cut rates until 2024, while the CBRT and the CBR could deliver further hikes this year.
- UK: GDP will probably rise by 0.3% this year (from 0.1%), while we continue to expect a minor contraction of 0.1% in 2024. Activity will likely shrink by a cumulative 0.5% in the three quarters covering 3Q23 to 1Q24, followed by a weak recovery, as the full effects of rate hikes have yet to materialize. We forecast headline inflation to fall rapidly to the 2% target by the end of 2024. The BoE is likely done with hiking rates, and we expect rate cuts to start in 3Q24 or sooner.
- China: We are lowering our GDP growth forecast for 2023 to 5% from 5.4%, and for next year to 4% from 4.3%. After a sharp rebound in 1Q23 following the reopening of the economy, activity has disappointed on many fronts. Private consumption remains subdued, while the real estate sector is still a source of vulnerability. Consumer inflation is almost nonexistent amid weak aggregate demand. So far, the government has refrained from adopting a bold, all-in policy stimulus, instead opting for a piecemeal approach. Going forward, most of the policy support is likely to come from monetary policy through rate cuts and the activation of targeted lending facilities.
Source: UniCredit Research - UniCredit Economics Chartbook, 27 September 2023, Executive summary
1 EU-CEE refers to CEE countries that are members of the EU: Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, Slovakia and Slovenia