Global Economy Uncertain Despite Easing Inflation & Supply Chain Fears

Highlights

• Sharp falls in inflation to leave behind some of the recent challenges for the global economy.
• Central banks approaching the end of the tightening cycle partly as a response to recent tensions in the banking system.
• Easing supply chain pressures and resilient labor markets to support recovery but uncertainty about the outlook remains high.
• ⁠⁠⁠⁠⁠⁠⁠KPMG forecasts world GDP growth of 2.1 percent and inflation at 5.3 percent for 2023

The global economy is on a path to recovery, but challenges persist, according to KPMG’s latest Global Economic Outlook report. While inflationary pressures are easing, geopolitical tensions and domestic challenges in key markets are slowing any return to sustained growth. 

The report notes that the global economy has been through significant shocks in the past three years, including the Covid-19 pandemic and the Russia-Ukraine conflict. It has seen a major expansion of government debt and a significant hike in policy interest rates by central banks. Despite this, KPMG is forecasting GDP growth of 2.1 percent in 2023 and 2.6 percent in 2024.

Global energy prices return to pre-Ukraine invasion levels, easing inflationary pressures

Global energy prices have returned to levels last seen prior to the invasion of Ukraine, combined with easing commodity and food prices. This has helped put further downward pressure on inflation for the rest of 2023, according to KPMG’s Global Economic Outlook report.

Domestic pressures delay improving market conditions and drop in inflation

Major economies throughout the world, including the UK and USA, are facing their own domestic pressures, delaying any hopes of improving market conditions and a drop in inflation. The report notes that the nuanced, complex picture in each country, region and territory is placing unprecedented pressure on central banks, with worries that core inflation could remain sticky and price rises could become entrenched due to the relatively tight economic environment facing a number of territories.

Startups can play a key role in driving economic growth

Despite the challenges, startups can play a key role in driving economic growth. With fiscal policy left as the potential tool to boost economic growth, startups can help drive innovation, create jobs and boost local economies. KPMG’s forecasts show that employment levels should remain robust, even given recent tech layoff announcements – a sign that the tightness of the labor market faced post-pandemic shows little sign of easing.

Global trade set to recover as trade flows normalize with the reopening of the Chinese economy

The pressure on global supply chains has eased significantly in recent months, while shipping costs have dropped too. This should help alleviate some inflationary pressures and improve supply capacity. Global trade remains relatively weak, although KPMG expects it to recover this year as trade flows normalize with the reopening of the Chinese economy and a recovery in global growth. However, geopolitical tensions are likely to continue to exert some pressure on trade flows over the medium term.

Consumer demand expected to pick up this year, excess savings still high in China and Europe

Consumer demand is also expected to pick up this year, with excess savings – money saved during the pandemic when spending on certain services was not possible – still relatively high in China and Europe, which could potentially be deployed once confidence returns. Consumer confidence has started to improve in Europe, although it remains at relatively low levels.

The actions taken over the coming months are likely to play a significant role in the pace and nature of the world’s economic recovery. Strong employment figures, combined with relatively strong personal savings among consumers – especially in Europe and the Americas – means we could start to see robust consumer spending, driving a return to slow-but-steady domestic growth in key markets. Despite the challenges faced by the global economy, startups can play a key role in driving economic growth, creating jobs and boosting local economies.

Source: KPMG