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Macroscope | China reopening and Asia rebound could see global recession avoided in 2023
- While the global outlook is downbeat, a turnaround in US real income growth, China’s rapid reopening and a release of pent-up consumer demand in Asia could offset slowdowns elsewhere
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High inflation across most developed and emerging markets in 2022 led to one of the most aggressive and synchronised monetary tightening cycles observed in the past few decades. The lag in the effects of tighter financial conditions, combined with lower household income, means global growth deceleration is inevitable in 2023.
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But, while the global outlook is downbeat, a closer look reveals underlying differences in growth trajectories across major economies.
A study of US recessions dating back to the 1940s shows that declines in private investment, including corporate spending and housing, were often key contributors to negative real GDP growth.
Today’s housing market has been hit by higher borrowing costs. Home-builder confidence and existing home sales have fallen to the low levels seen during the uncertainty when Covid-19 first surfaced in 2020. And given the divided federal government following the US midterm elections, additional fiscal spending to support growth could be difficult to secure.
Both developments point to a higher risk of recession in the United States. However, the proverbial soft landing might not be such a stretch if we consider the mitigating factors on the consumption front.
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First, consumption makes up about two-thirds of the US economy and remained robust throughout 2022, even as unemployment benefits expired because consumers tried to maintain the levels of consumption supported by the previous government help.
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