What Will Happen to the Global Economy in 2023?

Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound, and Chinese yuan banknotes are seen in this picture illustration, on Jan. 21, 2016. Jason Lee/Reuters

As the world faces a string of financial challenges, the outlook for the global economy in 2023 is growingly increasingly rife with uncertainties.

Higher interest rates, out-of-control inflation, ongoing supply-chain issues stemming from the COVID-19 pandemic, an energy crisis, Russia’s invasion of Ukraine, and other geopolitical events have been key themes this year, and will likely remain so going into next year.

While some analysts believe there is hope for improvements within the global economy in 2023, most maintain a pessimistic outlook going forward under which global economic growth will drastically slow down.

How Is the World Economy Doing?

The global economy is certainly facing a period of uncertainty right now, with numerous countries, including the United States, the United Kingdom, and Germany, appearing to be headed toward a recession.

Back in July, Pierre-Olivier Gourinchas, economic counsellor and director of research at the International Monetary Fund (IMF), warned that the outlook for the global economy has “darkened significantly since April” due to a combination of Russia’s invasion of Ukraine and its knock-on effects on European Union nations, tighter monetary policy in the United States, and a slowdown of China’s economy in response to its strict zero-COVID policy.

“The world may soon be teetering on the edge of a global recession, only two years after the last one,” Gourinchas said.

In October, the IMF lowered its global growth forecast for next year to 2.7 percent, down from 6 percent in 2021, while warning that “the worst is yet to come” and that for many people, 2023 will “feel like a recession.”

In addition, the IMF anticipates countries accounting for more than one-third of global output to contract during part of this year or next.

Elsewhere, the World Bank and the Paris-based Organization for Economic Cooperation and Development (OECD) have shared similar outlooks for the global economy.

The World Bank in June said it expects global growth to slump to 2.9 percent in 2022 and remain around that figure through 2023 and 2024, as Russia’s invasion of Ukraine “disrupts activity, investment, and trade in the near term, pent-up demand fades, and fiscal and monetary policy accommodation is withdrawn.”

In September, the OECD forecasted that the world economy will grow just 3 percent this year before slowing down to just 2.2. percent in 2023, which it said represents around “US$2.8 trillion in foregone global output in 2023.”

Epidemic-prevention workers in protective suits stand outside a residential compound that is under lockdown in Beijing, China, on Nov. 28, 2022. Thomas Peter/Reuters

Which Country Has the Most Stable Economy 2023?

Gross domestic product (GDP), which measures the production of goods and services within a country, is typically used to gauge the size of a nation’s economy.

By that measurement, the United States, with a GDP of more than $24 trillion, has the strongest economy, followed closely by China with a GDP of $18.46 trillion, and Japan with a GDP of $5.38 trillion.

However, that is not to say that the U.S. economy is necessarily stable, with the country battling with public debt of around $30.9 trillion and a deficit of $1.37 trillion in the fiscal year 2022, as well as billions of dollars in unspent stimulus that has yet to be injected into the economy. Still, consumer spending increased this month and the labor market remains strong.

Is the Global Economy Growing?

Simply put, no, the global economy is slowing down. Inflation has soared in nations throughout the world, pushing up prices for everything from food to energy, prompting central banks to raise interest rates to bring the cost of living under control.

Meanwhile, Russia’s war with Ukraine, which has had significant knock-on effects on the price of energy and thus inflation, doesn’t appear to be showing any sign of nearing an end.

Increasing COVID cases in China and continued lockdowns are also still impacting the global supply chain, placing huge pressure on China’s current economy, and raising the risks to the global economy.

As noted by the IMF in October, “Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades.”

“The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook,” the IMF said.

A Russian soldier patrols a street in Mariupol, Ukraine, on April 12, 2022. Alexander Nemenov/AFP via Getty Images

How Did Covid Affect the Global Economy?

The COVID-19 pandemic wreaked havoc on economies across the globe as countries began implementing strict lockdown measures in an effort to stem the spread of the virus.

Businesses were shut down, people lost their jobs, the travel industry effectively came to a standstill and stock markets saw dramatic falls.

Strict lockdowns in China are still ongoing amid a surge in virus cases that have resulted in the ruling Communist Party locking down large swathes of the country. Those lockdowns have contributed to a slowdown in China’s economy, with industrial output declining in a country that dominated in the manufacturing industry.

In an effort to prop up their economies, many world leaders rolled out extensive and costly stimulus programs, with the Biden administration in the United States granting around $931 billion in COVID-19 relief funds to American households affected by the pandemic.

However, many experts believe those costly stimulus programs have contributed to the current soaring inflation in the United States. In October, New Hampshire Gov. Chris Sununu warned that inflation was going to remain very exacerbated for the next few years and a “very real” recession was going to take place owing to stimulus money that has not yet been spent.

Overall in 2020, the world’s collective gross domestic product (GDP) fell by 3 percent.

DesignRage/Shutterstock

Are We Headed for a Recession?

The U.S. economy contracted for two consecutive quarters this year, which is widely seen by experts as the definition of a recession. However, the National Bureau of Economic Research (NBER), the body that formally declares a recession, has not yet done so.

The NBER defines a recession as a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

While analysts, and indeed the Biden administration, appear to be divided on whether or not the United States is currently in the midst of an economic downturn, the majority of experts believe 2023 will likely see the country enter a recession.

JPMorgan economists predict a “mild recession” in the latter half of next year, while Deutsche Bank analysts anticipate the U.S. economy is likely to slip into a recession in the second half of next year.

A survey of 40 economists by Bloomberg in October found that 75 percent expect a recession in the next two years. In contrast, Morgan Stanley economists believe the United States may narrowly avoid a recession next year, in part to a resilient labor market.

Which Will Be the Fastest-Growing Economy in 2023?

India is set to be the fastest-growing economy next year, while major economies like those of the United States and China are expected to slow down in growth in 2023, according to an October report by the IMF.

The report pegged India’s growth at 6.1 percent, a 0.6 percentage-point downgrade from an earlier July forecast, which the IMF said reflected a “weaker-than-expected outturn in the second quarter and more subdued external demand.”

Meanwhile, China is following closely behind India with 4.4  percent growth, while Saudi Arabia is expected to witness 3.7 percent, and Nigeria 3 percent. The U.S. economy is projected to grow at 1 percent, while Russia, Italy, and Germany were all forecast to see a decline in growth.