Us Economy Outlook For 2023 – Global growth is forecast to slow to 3.0 percent in 2023 and 2024 from 3.5 percent in 2022. The forecast for 2023 is slightly higher than the forecast in the April 2023 World Economic Outlook (WEO), but remains weak by historical standards. Central bank interest rate hikes to combat inflation put pressure on economic activity. Global core inflation is expected to moderate from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2 percent in 2024. Although headline (core) inflation is expected to decline gradually, inflation forecasts for 2024 have been revised upwards.
Strong moves by authorities earlier this year to stem turmoil in US and Swiss banking and a recent resolution on the US debt ceiling have reduced the risk of panic in the financial sector. This has reduced the risks in perspective. However, the balance of risks to global growth remains low. Inflation could be as high or higher if further shocks occur, including events resulting from the escalation of the war in Ukraine and extreme weather conditions resulting in more restrictive monetary policy. Turmoil in the financial sector could continue as markets adjust to further tightening by central banks. China’s recovery may be slow in part due to unresolved real estate issues and negative cross-border spillovers. Government debt may spread to more economies. On the positive side, inflation may decline faster than expected, the need for tighter monetary policy may diminish, and domestic demand may stabilize again.
Us Economy Outlook For 2023
In most economies, the priority is to ensure fiscal stability while steadily reducing inflation. Therefore, central banks should be careful to restore price stability, strengthen financial regulation and monitor risk. In the event of a market crisis, countries should provide immediate liquidity while minimizing moral hazard. They should also create financial buffers and have a mix of financial arrangements that provide targeted support to the most vulnerable. Improvements in the supply side of the economy will lead to fiscal consolidation and a slight reduction in inflation to the target level. Given the stronger-than-expected economic growth through 2023, a recession seems off the table this year.
What Systems Integrators, Others Should Expect In The Second Half Of 2023
The US economy, measured by real GDP, expanded at an annual rate of 2.0-2.4% in the first half of the year. Although business sentiment is weak and business investments (inventory and equipment) are sluggish, there are signs that this is turning around. At 65% of GDP, consumer spending was steady over the period. If consumer spending moderates in the second half as we expect, growth may fall to lower levels early next year. We forecast real GDP growth of 2% in the second half of 2023 and 0.5% in the first half of 2024.
Monetary policy has been accommodative for months and we think the March cycle is coming to an end. The Fed raised interest rates by 525 basis points to a target range of 5.25-5.5% from March 2022, the largest increase in four decades. If the downward trajectory of inflation continues, we expect the Fed to remain on hold through the middle of next year. Quantitative tightening, or the process of shrinking the Fed’s balance sheet, continues at a rate of about $100 billion a month, effectively removing that amount from markets and the economy.
Inflation is moving in the right direction – down, but proved more resilient than expected in the first half of the year. While falling energy prices have helped inflation modestly over the past few months, core inflation, other than volatile energy and food prices, has seen little improvement, particularly in the services sector. Core goods inflation eased to 0.8% from 12% last year, while core services inflation eased to 6.1% in July from 7.3% in February. We expect inflation to gradually improve in the coming months, but a return to the Fed’s target of 2% may take until late 2024.
Labor markets remain tight with unemployment down to 3.5%; But some mixed signals are beginning to emerge. Job vacancies and wage growth have been above long-term averages in recent months, declining labor productivity measures, low temporary employment and low turnover rates suggest a better balance between labor supply and demand. Additionally, mounting pressure on corporate profits could cause employers to slow hiring or cut headcount in the coming months. We expect the unemployment rate to move into the high 3% region by the end of the year and into the low 4% region in 2024.
Growth Expected In The Pacific Region In 2023, 2.8% In 2024 — Adb
For the US consumer, the excess savings accumulated since the pandemic days continue to wind down, and we expect this support to be effectively completed by the end of the year. While spending was generally stable in the first half of the year, growth remains moderate, with a continued mixed shift to services such as travel, dining and live entertainment. Resuming student loan payments this fall may be a little less. Importantly, household balance sheets still appear to be on solid footing, with most debt (mortgages) secured at low fixed interest rates. Default rates on credit card debt and auto loans have remained normal, but do not appear particularly weak compared to previous periods.
Lower shipping costs, more container ship capacity and shorter delivery times have relieved pressure on the supply chain. The availability of some commodity inputs and semiconductor chips and components has not reached pre-pandemic levels, but is steadily improving.
After a 30-40% decline in activity in the second half of 2022, housing construction has been recovering in recent months. As 30-year fixed mortgage rates have remained in the 6.5-7.25% range since last November, housing construction, existing home sales and housing sentiment are beginning to stabilize. Median home values remain elevated at about 5% of all-time highs, supported by historically low vacancy rates.
Even if the debt ceiling crisis is averted in June, government spending restraint in some non-defense discretionary sectors could cause economic growth to weaken slightly in 2024 and 2025. The Congressional Budget Office predicts that cuts in federal spending as part of the debt ceiling deal will lead to this situation. This will reduce GDP by 0.2% in 2024 and 2025. For reference, the 2011 debt ceiling cycle resulted in spending cuts equivalent to 0.7% of GDP in the year following its passage. Fitch ratings agency downgrades US rating from AAA to AA+; This reflects high government borrowing levels and recurring fiscal budget and debt ceiling events.
Oecd Economic Outlook
Volatility from regional banking disruptions has largely eased, but uncertainty about the sector’s credit growth outlook remains high. In the first half of the year, small and regional banks cut their 2023 loan growth forecasts from the high single digits to the mid single digits. This may be optimistic given the expected pressure on industry margins due to the interest rate environment and regulatory hurdles.
Challenges in the $4.5 trillion commercial real estate sector are expected in the coming quarters as leases renew and a significant portion of debt matures. CRE’s capital market activity has declined dramatically; This reflects concerns about the fundamentals and valuations of prime properties, particularly urban office and retail.
As of early 2022, unemployment is between 3.5% and 3.8%, but that rate is expected to rise as economic activity cools. The line chart shows the percentage change in GDP on the left vertical axis and the unemployment rate on the right vertical axis. Both values follow actual values up to Q1 2022, followed by projected values up to Q4 2024. GDP growth slows; GDP is expected to grow by around 1.5% on an annual basis in the first half of 2023, before slowing to 0.5% on an annual basis in early 2024.
Ginger Chambless is Head of Commercial Banking Research. In this role, he develops thought leadership content for CB clients and internal teams. Its content focuses on financial and market data, industry trends and capital markets. Join LinkedIn.
Us Economic Outlook For The Second Half Of 2023 In Four Charts
© 2023 Chase & Co. all rights reserved. Chase Bank, N.A. Member FDIC. For disclosures and disclaimers about this content, visit /commercial-banking/legal-disclaimer. The U.S. economy looks stronger in the next three quarters than it did three months ago, according to 37 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel expects real GDP to grow 1.9 percent annually in the quarter; This figure is higher than the 0.6 percent estimated in the last survey. Forecasters predict higher-than-expected output growth in the next two quarters. Using annual averages, forecasters forecast real GDP growth of 2.1 percent in 2023 and 1.3 percent in 2024. These annual estimates are higher than previous estimates three months ago.
Upward revisions to growth are accompanied by downward revisions to unemployment rate forecasts. While forecasters forecast the unemployment rate to rise from 3.6 percent this quarter to 4.0 percent in the second quarter of 2024, those forecasts point to a downward revision.