Recession, inflation, Ukraine, China, monetary policy, etc.

 Wansquare asked a panel of economists and business leaders for their forecasts for 2023. Here is what our chief economist Jean-Christophe Caffet had to say. What is your outlook for the global economy? Have you developed several scenarios depending on how the war in Ukraine develops?The consequences of the war in Ukraine are severe and, in principle, lasting. However, they took longer than initially expected to have an impact on global economic growth, despite the acceleration of inflation caused by the sharp rise in commodity prices, particularly energy. With the exception of China, 2022 will therefore have been a much better year than we had feared in the days following the invasion of Ukraine. There are three main reasons for this discrepancy, if not in forecasting, then at least in the timing of the estimated effects of the conflict: the post-pandemic rebound that is still at work and the rapid reopening of many economies after the Omicron wave; the quasi-continuous attenuation, from then on, of disruptions to global value chains, despite the Chinese confinements of the second quarter; and the strong dissaving of agents, especially households – with the reserves accumulated during the pandemic acting as a cushion.The emergency measures taken to deal with the energy crisis, particularly in Europe, have also played their part in preserving activity and, to some extent, social stability. But all these elements cannot play out forever, and the outlook for 2023 is gloomy, to say the least, regardless of how the conflict in Ukraine develops. We expect global growth to be below 2% next year, compared to an average of more than 3.0% over the last ten years. Is a recession inevitable in Europe in the coming months? And in France? A recession in Europe seems quite possible, if not highly probable, at the turn of the year. In fact, we are probably already in a recession, judging by the latest available statistics and recently published leading indicators. Nevertheless, we should avoid a sharp contraction in activity, with growth only slightly negative in the fourth quarter of 2022 and the first quarter of 2023. In short, the worst-case scenario of a severe recession due to a physical energy shortage has been avoided thanks to massive purchases of liquefied natural gas (LNG) throughout the year and particularly warm temperatures during the fall. This allowed Europe to enter the winter with high natural gas stocks and to see its prospects brighten in the very short term. The same is true for France, which should be relatively less affected than its larger neighbors if the situation were to deteriorate more sharply, due to its lesser dependence on natural gas on the one hand, and its more limited industrial base on the other. Should we Worry about a decoupling between the US and the Eurozone? In the short term, i.e. over a 9-12 month horizon, we cannot really talk about a decoupling between the US and the Eurozone. Both economies will indeed slow down significantly and simultaneously. A recession cannot be ruled out in the United States either, although we expect growth to be significantly higher than in the Eurozone over the whole of 2023. In the longer term, however, we must be concerned about a decoupling between the two currency zones for all the reasons that existed before the current crisis and that remain (demographics, innovation, productivity, etc.), to which we must now add a differential that is in principle sustainable in terms of energy prices and even access to resources. If the authorities on both sides of the Atlantic do not address the problem, this decoupling will have massive repercussions on global (geo)political, economic and financial balances. Are you concerned about the Chinese economic slowdown? One of the main uncertainties for 2023 concerns the Chinese macroeconomy. The consensus view, which we subscribe to more by assumption than by pure conviction, is that China‘s economy will rebound strongly once the current boom is over. But the challenges facing the Chinese economy are many, not least of which in the short term is the crisis in its real estate sector – which will not be resolved with the measures recently announced by the authorities. What worries me more is the scenario of a strong Chinese rebound in the second half of the year, as this would considerably complicate the rebuilding of European natural gas stocks. Let’s not forget that this was made much easier this year by a drop of about a quarter in Chinese LNG purchases. It is one thing to build regasification terminals in Europe, but it is…

Source : Recession, inflation, Ukraine, China, monetary policy, etc.