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A year of recession and disinflation

We expect many major economies to slip into recession in 2023 as the effects of high inflation and rising interest rates are felt. Our forecasts are below the consensus in most areas but particularly in Europe, where the energy crisis will continue to weigh heavily on real incomes. The authorities are making policy changes to address two of the key drags on China’s economy – the zero-COVID policy and the property sector downturn. But even as these efforts start to bear fruit, the economy will be buffeted by weaker global demand for China’s exports. The consolation is that since inflation now seems to be receding all over the world, central banks should be able to take their feet off the brakes before long, allowing a recovery to begin late this year.