Global economic growth will decelerate in 2023, according to Goldman Sachs, a major international investment firm.
According to the company’s research titled “macro outlook 2023: this cycle is different,” the future looks bright.
As the United States shows resiliency in contrast to a European recession and a rocky reopening in China, Goldman Sachs predicts the global economy will grow at a slower-than-expected pace of 1.8 per cent in 2023.
In comparison to the International Monetary Fund (IMF) ‘s prediction of 2.7%, the prognosis is lower.
The paper states, “Global growth slowed sharply through 2022 on a diminishing reopening boost, fiscal and monetary tightening, China’s ongoing Covid restrictions and property slump, and the energy supply shock resulting from the Russia-Ukraine war.”
To paraphrase the report, “We expect the world to continue growing at a below-trend pace of 1.8 percent in 2023, with a mild recession in Europe and a bumpy reopening in China but also important pockets of resilience in the US and some EM early hikers, such as Brazil.”
Furthermore, the investment bank anticipated that the United States would barely avoid a recession in 2023.
Goldman Sachs predicted that despite a rise in the unemployment rate of 0.5 percentage points, the United States will avoid a recession thanks to falling core PCE inflation from 5% today to 3% in late 2023.
“To keep growth below potential amidst stronger real income growth, we now see the Fed hiking another 125bp to a peak of 5-5.25 per cent. We don’t expect cuts in 2023.
“How can core inflation fall so much with such a minor employment hit? The reason, we think, is that this cycle is different from prior high-inflation periods.
“First, post-pandemic labour market overheating showed up not in excessive employment but in unprecedented job openings, which are much less painful to unwind.
“Second, the disinflationary impact of the recent normalisation in supply chains and rental housing markets still has a long way to go.”
And finally, “and third, long-term inflation expectations remain well-anchored.”
Goldman Sachs, meanwhile, predicted that the Eurozone and the United Kingdom were already in recession due to a drop in real income brought on by rising energy costs.
“But we expect only a mild downturn as Europe has already managed to cut Russian gas imports without crushing activity and is likely to benefit from the same post-pandemic improvements that are helping [to] avoid US recession,” the report said.
“Given reduced risks of a deep downturn and persistent inflation, we now expect hikes through May with a 3 percent ECB peak.”
Economists at Goldman Sachs predict that the region’s economies will get off to a poor start in 2023 because of the waning effects of the reopening boost, the weakening global manufacturing cycle, and the past monetary tightening.
“China is likely to grow slowly in H1 as an April reopening initially triggers an increase in Covid cases that keeps caution high, but should accelerate sharply in H2 on a reopening boost,” the bank said.
“Our longer-run China view remains cautious because of the long slide in the property market and slower potential growth (reflecting weakness in demographics and productivity).
“Several central banks in Central/Eastern Europe and Latin America started hiking rates well before their DM peers. While none has achieved a soft landing yet, activity has been resilient, and inflation is now coming down in some countries, especially Brazil.
“CEE is in a more difficult position because of its commodity exposure, high inflation, and ongoing monetary tightening.”
There were rumours earlier this month that Goldman Sachs intended to lay off over 4,000 workers in 2019 due to declining revenues.