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Global Economics

Aggressive policy tightening to push global economy into recession

Persistently high inflation and the most aggressive monetary policy tightening in several decades mean that the global economy will now fall into recession next year. Global growth will fall to around 1.5% in 2023 which, excluding COVID and the GFC, will be the worst year for global growth since the 1980s. Most advanced economies will experience recessions, but they will be deepest in Europe, where economies are also suffering from particularly large terms of trade shocks. The US will experience a mild recession. And in China, zero-COVID, weak external demand and a struggling property sector will weigh on growth next year. Inflation has probably finally peaked, but core price pressures – in part fueled by strong labour markets – remain elevated, which will keep central banks in tightening mode. However, with inflation falling sharply next year, some central banks including the Fed will begin to cut rates in the second half of 2023, meaning that the global recession should be a relatively short one.

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