2023 marked by recession and disinflation

We continue to expect the world to slip into recession in 2023 as the effects of high inflation and rising interest rates are felt. Our forecasts are below the consensus across the board but particularly in Europe, where the energy crisis will continue to weigh heavily on real incomes. And while the outlook for China has brightened as the government has taken the first steps back from its zero-COVID policy, “living with COVID” will be more difficult than many assume. The consolation is that the recession should not be very deep by recent standards: this is not another pandemic or financial crisis. And 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 next year.