• Global economic growth is expected to slow to 2.4% in 2023. Aggressive monetary policy tightening by the major central banks to control surging inflation is beginning to have the desired effect. But as a result we see recessions in the US, UK, Japan and Canada in 2023. China will be one of the main sources of economic growth this year.
  • Concern over the global banking system could persist, but the authorities look to have effectively reduced the risk of contagion.  While not immune to global banking developments, the Australian banking system remains strong.
  • Global supply chains look to be returning to ‘normal’ as global shipping costs decline.  Australian major commodity prices, including iron ore, are expected to trend lower through the remainder of 2023 and into 2024.
  • Policies designed to support the global transition to net zero carbon by 2050 will also continue to dominate the global economy. Sustainable Economics is a key focus for our research.
  • Australian economic growth is expected to slow substantially in 2023, as the lagged effect of the RBA’s rapid monetary policy tightening cycle raises the cost of debt for households (mortgagees and renters) and businesses and consumer spending slows meaningfully. This should help inflation return to the RBA’s 2-3% target range by H1 24 and allow the RBA to begin an easing cycle before the end of 2023, returning policy to a more neutral setting.

Global economic outlook

2023 is already proving to be yet another challenging year. The ongoing efforts by global central banks to bring inflation back under control has created market volatility and uncertainty. And, as is well known, this has manifested itself in some significant concerns in the banking system in a number of key economies.

When I released my 2023 outlook note in November last year (see here), I talked about the need for global central banks to keep raising interest rates to get on top of the surge in inflation across most of the developed world.

And of course, that is what has transpired. This tightening of monetary policy is expected to see global economic growth slow through the course of 2023. As per our recently updated global economic forecasts (see here), we now see global growth for 2023 of 2.4% – down from 2022 growth of 2.8%. We expect recessions in the UK, the US, Japan and Canada in 2023. China will be one of the main sources of global economic growth this year.

When we look at the pace of inflation, we can see there are clear signs of a peaking in the annual rate of inflation across a number of the major economies.

Central banks, to varying degrees, have been hard at it raising interest rates. A number of central banks, including the RBA, have signalled they are near the end of the rate hike cycle – while others still have more work to do.

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CBA’s Global Economic and Markets Research team publishes a wide range of economic and financial research each week covering the latest data, trends, policy developments and topical issues in Australia and other major economies. To access these publications please visit the GEMR website.

Our Economic Expert

Stephen Halmarick is Chief Economist and Head of Global Economic & Markets Research at Commonwealth Bank of Australia. He was appointed to the Chief Economist role in April 2020 – having been the Head of the Global Economic & Markets Research team since January 2018. Stephen is responsible for the team of economists and strategists that cover Australian Economics, International Economics, Rates, Fixed Income, Foreign Exchange, Credit and Commodities research. Stephen is also a key spokesperson to clients and media on macroeconomic themes and a broad range of financial market issues.

Things you should know

  • 1 This note is an updated and edited version of the keynote presentation I gave at the recent Australian Economic Roadshow events in Brisbane and Sydney.

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