Oxford Economics March Update
Oxford Economics has raised our 2023 world GDP growth forecast for the second consecutive month to 1.7%, from 1.5% a month ago. They expect global GDP growth to pick up to 2.5% in 2024, but this would still represent a lacklustre performance, even by the standards of the post-global financial crisis period. The global economy still looks set for a sustained period of weakness.
Recent activity data for advanced economies have generally continued to surprise the upside. They now expect US GDP to grow by a solid 0.5% q/q in Q1, a touch weaker than in Q4. They’ve also pushed back the start point for a decline in GDP to Q3 from Q2 previously and reduced the size of the peak-to-trough fall. This has raised our 2023 growth forecast to 0.9% from 0%
While eurozone GDP contracted in Q4, They expect the region as a whole to avoid two consecutive quarters of falling GDP. Our 2023 eurozone growth forecast of 0.6% is slightly weaker than our US forecast, but it’s substantially better than some of the more bearish expectations at the end of last year.
They now expect more monetary policy tightening due to the upward revisions to our near-term growth assessment and wider concerns about the stickiness of inflation. They envisage both the Fed and the ECB will hike rates by a further 75bps this year, representing a 50bps rise to the Fed’s peak policy rate and a 25bps increase to the ECB’s from a month ago.
Due to the lagged impact of anticipated additional policy tightening, they’ve partially offset the better-than-expected H1 growth performance by nudging down their forecasts for H2 2023 and beyond. This has resulted in a smoother growth profile.
It is worth noting that although both their baseline forecast and the balance of risks around it have certainly improved over the past few months, 2023 is still set to be a year of steady but weak economic growth. High policy rates look set to constrain any recovery in 2024. The recent shift in their calendar year world GDP growth forecast mainly reflects changes in the timing of growth, rather than a significant upward shift in the expected level of activity.
Source: Oxford Economics
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