In the 2023 Spring Term Economic Report prepared by Allianz Trade, it is stated that the effects of loss of confidence caused by the return of the US banking sector from the crisis and the failure to solve the energy problem in Europe will shape the rest of the year. A significant recession is on the horizon for the US at the end of the year, mainly due to the slowdown in the housing, manufacturing and construction sectors. In the Euro Zone, on the other hand, it is emphasized that the economic momentum has slowed down with the gradual reduction of financial support. On the other hand, while the outlook for the Chinese economy improved, the global spread of the resumption of commercial activities in the country remained limited.
Limited increase in 2024
Among the highlights in the Allianz Trade Report are; There is a view that global growth will slow down to 2.2 percent in 2023, and this rate will rise to 2.3 percent in 2024 with a very limited increase. With the exception of the USA, Germany, Italy and the UK, other major advanced economies will manage to avoid recession, but emerging markets and especially commodity importers are generally under pressure from increased internal and external imbalances. under will stay.
According to the report; It is estimated that low demand will continue the stagnation in the manufacturing sector in 2023 due to the decline in the purchasing power of consumers and the prolongation of the renewal cycle of durable goods.
According to the assessments of Allianz Trade economists, the oversupply will likely continue this year, reducing the cost of traded products. While delivery times are starting to normalize, it is seen that logistics costs are approaching pre-pandemic levels. Global trade in goods and services will grow by only 0.9 percent in volume in 2023 (from 3.7 percent in 2022) and decline by 0.3 percent in nominal terms (from 9.6 percent in 2022).
Central banks can take a measured approach to interest rate hikes
In the report, it is emphasized that inflation will slow down significantly in the coming quarters and will average 6.6 percent at the global level this year. Given the persistence of core inflation, it was noted that central banks are likely to take a more measured approach to further rate hikes.
In Allianz Trade’s Economic Outlook report on the first quarter; Fiscal adjustments planned to give more flexibility to monetary policy for 2023; It is expected to be delayed due to efforts to re-establish confidence in the financial system and uncertainty regarding energy. The report states that after many countries took bold steps to mitigate the effects of the energy crisis, the space for fiscal maneuvering is now much narrower due to rising interest rates. Fiscal space is shrinking further as governments tackle key structural challenges aside from the current energy and banking crisis, such as the green transformation of their economies and the initiation of bold pension reforms, as in France and Spain.
Turbulence in banking will shape capital markets
In addition to all these, it is emphasized in the report that the turbulence in the banking sector will shape the outlook of the capital markets. While the potential effects of bank failures and the bailout of Credit Suisse in the US have been averted; Losses from regulations in real estate and repricing private debt risks appear to lead to significant vulnerabilities. More importantly, as banks raise credit standards and maintain capital and liquidity buffers, financing conditions will become tighter and loans will contract further, with adverse effects on market liquidity. Considering the current uncertainty regarding the path that central banks will follow regarding policy rates, it is estimated that the current volatile market dynamics in the first half of 2023 will continue in the second half of the year. According to the report, despite the economic and political support expected towards the end of the year, the momentum of recovery will only be felt in 2024.
According to the Allianz Trade Report, some global risks may be faced in the coming period. While trying to re-establish investor confidence, new bank bankruptcies and capital market disruptions are expected to come to the fore again. It is also among the estimations that the energy crisis in Europe may become more stalemate if the war in Ukraine escalates. Continuing high inflation for a long time increases the risk of policy errors of central banks. This is particularly evident for the Fed, which underestimates its data-driven approach, the lagged impact of rate hikes on aggregate demand, and the risk of deeper and longer-term economic contraction. Regional-economic conflicts, sanctions, trade wars and shielding of investments in the name of national security pose risks for all economies around the world. However, in the report; It is among the predictions underlined in the report that a ceasefire in the war in Ukraine will reduce the market pressure and supply constraints to some extent, global trade that has slowed down with the resumption of China’s commercial activities will revive and the decrease in producer prices will accelerate.
Significant decline in employment
While the economic outlook remains bleak, labor market dynamics are slowing. According to the report; Consistent with the recession projections in the USA, it is expected that employment will start to decrease as of the last quarter of 2023 and the unemployment rate will increase accordingly. In Europe, the labor market has proven resilient throughout both the pandemic and energy crises, and the unemployment rate has remained stable at a historically low level in the first quarter of 2023.
According to the predictions of the Allianz Trade report, the slowdown in global growth and the cumulative tightening in monetary policy are expected to increase the impact on economic activity and employment in 2023.