Qatar National Bank (QNB) expects the global economy to grow by 2.6 percent this year, with all major economies recovering faster than analysts had expected.
In its weekly report, QNB noted that global growth remains resilient in the face of multiple monetary, financial, and geopolitical headwinds.
The report finds that there is no more upward revisions, especially after the recovery of the Chinese economy, the slowdown in the euro area, and the resilience of consumption levels and labor markets in the United States of America.
It said that the negative expectations of investors and analysts dominated the global macroeconomic agenda at the beginning of this year. This came on the heels of a very challenging year 2022, when market participants had to confront the hard realities of weak economic activity, high inflation, and geopolitical polarization.
The report added that the gloomy environment in January 2023 led to a weak economic and market outlook for that year. In fact, the Bloomberg Forecast Consensus, a global forecast tracker for analysts points to a tepid global economic expansion of 2.1% in 2023, significantly below the long-term average of 3.4%. This implies that the global economy could be effectively labelled as "recessionary," if we use the International Monetary Funds threshold of 2.5% to define a global recession.
It mentioned that those expectations were very pessimistic, as indicated by the previous economic analysis issued by QNB on the first of last January, in which it emphasized that as we enter the new year in 2023, it is safe to say that a large amount of negative events is already digested and understood. In our view, the previous series of downward revisions led to overdone pessimism about lower growth prospects. We therefore expect to see the global economy growing by 2.6% in 2023.
The report indicated that the doubts raised about the imminent global recession, in the middle of this year, were justified, despite continued monetary tightening, banking problems in the US, and manufacturing weakness across the continents, over time, the consensus reached a more optimistic view, as US consumption levels and labor markets have proven more resilient, there has been a surprising positive recovery in the Chinese economy, and the slowdown in the euro area has eased.
It caution against a full U-turn from too much pessimism to too much optimism. While it believe global growth will continue to be resilient in the face of multiple headwinds (monetary, fiscal, and geopolitical), we do not see scope for a further sequence of upward revisions. It rather maintain the growth projections from earlier this year. Three main factors support this cautious view of weak but supported growth for the rest of the year.
First, global consumers are unlikely to benefit from the same type of tailwinds that supported real disposable incomes in H1 2023. The sharp correction in commodity prices, down more than 30% in about a year, favored a significant deceleration of inflation and inflation expectations. As a result, real wage growth and disposable incomes received a boost, which further supported consumption globally. But there is limited room for commodity prices to decline further. Global inventories are at record lows and supply growth should be limited, as further output increases require new investments that are not currently on the pipeline.
Second, higher monetary policy rates are affecting consumer spending and corporate investments. As time goes by, more homeowners will be affected by costlier mortgages. A similar logic is also valid for corporate debt. As credit becomes more costly through higher interest rates, overall investment spending will dampen private sector growth contribution. Hence, monetary policy is set to slowly permeate the real economy.
Third, following a period of expansion after its late post-pandemic "reopening," Chinas economy is losing steam again. Fiscal and monetary stimulus are so far limited, calibrated to sustain a normal level of activity but not to produce the type of investment booms that were part of the Chinese easing cycles in the past. While additional stimulus are expected for the rest of the year, we see no "policy bazooka" this time around. Hence, significant positive growth surprises from China are unlikely.
All in all, global growth has been more resilient than analysts and markets expected earlier this year. However, the room for positive surprises is now much more limited than it was six months ago, when excessive pessimism took over investors and economists.
