Global Outlook Ukraine

EIU Global Outlook—a summary of our latest global views


Despite strong headwinds, mostly related to the ripple effects from the war in Ukraine and high global inflation, the global economy has proven resilient so far in 2023. Europe avoided a recession in the winter of 2022/23, in part owing to warmer than usual temperatures and to the rapid switching to alternative energy sources following Russia’s decision to turn off gas flows. US consumer spending has also held up better than EIU initially expected, with the labour market and consumer spending strengthening further in early 2023. Finally, China’s exit from the government’s zero-covid policy has also supported global activity. We therefore expect global growth to stand at a modest—but not anaemic—2.2% in 2023 (revised up from 2.1% in our previous forecasting round).

Global GDP growth is still expected to slow in 2023

Despite the brighter outlook, growth of 2.2% this year would still represent a slowdown. The war is affecting the global economy via higher commodity prices, supply-chain disruptions and Russia’s weaponisation of energy supplies. This situation will persist throughout 2023 (and probably beyond), as we expect the war to become a protracted conflict with no clear resolution. The economic impact of the war is felt especially strongly in Germany and central Europe, where energy-intensive industries will struggle to remain competitive. The UK economy is also being disproportionately hit by the cost-of-living crisis, given its reliance on private consumption, and we expect it to be one of the few economies in the region (alongside Germany) to only narrowly avoid a recession in 2023. In the US, we still expect annual growth to slow sharply this year, to 1%, as the pace of consumer spending becomes unsustainable in the face of high inflation and a steep rise in interest rates. In China, the initial rebound in consumer activity after the lifting of the government’s zero-covid policy has been strong. We expect it to pick up even further in the coming months, and forecast full-year growth of 6.1%.

The war in Ukraine will keep a floor under commodity prices

We expect global commodity prices to continue easing from their 2022 peaks this year, but to remain well above pre-war levels. However, China’s reversal of its zero-covid policy will put upward pressure on oil prices, which we expect to remain above US$75/barrel in the medium term. An EU ban on seaborne Russian oil imports (since late 2022), China’s reopening (in early 2023) and the decision by OPEC+ members in April to cut production will all exacerbate market tightness. We expect European gas prices to ease gradually in 2023-24 but to remain above 2019 levels, weighing on households and businesses. The possible tightening of Western sanctions (for instance on refined Russian oil) will fuel price volatility.

Global inflation will remain high in 2023

We expect global inflation to ease slightly, from an estimated 9.2% in 2022 to 7.2% in 2023. High global commodity prices, continued supply-chain disruptions from the war in Ukraine and, in some parts of the world, the still-strong US dollar will keep annual inflation well above 2019 levels. However, we expect inflation to lose some momentum as global demand softens and commodity prices start to ease back from their 2022 peaks. We expect central banks to maintain their aggressive policy stance in an effort to bring inflation under control, even as global growth slows. Interest rates in most major economies will peak by mid-2023, and in most cases will then stay on hold until 2024.

Risks to the global economy abound

Several potential scenarios could derail our forecasts. The most impactful of these include: an escalation of the war in Ukraine (there is little prospect for an end to the hot war this year or next); social unrest arising from high inflation (especially given that high levels of public indebtedness constrain emerging countries’ room for manoeuvre to mitigate the impact on households); an escalation of tensions around Taiwan (following China’s frequent military manoeuvres around the island); financial contagion following the collapse since March of three US regional banks and turmoil at a Swiss banking giant, Credit Suisse; the emergence of a new variant of covid-19 (or of another highly infectious disease) that is especially aggressive; and extreme weather events that further fuel global inflation. If one (or several) of these scenarios were to materialise, a global recession this year or next would be likely.

Fears about global food supplies are high

Fears about global food supplies remain high amid risks to grain exports from Russia and Ukraine (together, these countries account for around one-third of global wheat trade). Fears of a war-induced shortage of fertiliser have proven overblown; however, Russia’s willingness to hold up its end of a deal that allows the passage of grains out of Ukraine remains in doubt. In addition, food prices remain high and are still rising (owing to extreme weather events and high energy and transport costs), fuelling the risk of social unrest.

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