Economic growth in the eurozone and the US will be weak in 2023, according to Munich Re Economic Outlook 2023. While inflation is falling in many industrialized nations, it will remain higher than previous levels in the medium term, according to the report. Inflation will exceed the targets of the world’s major central banks until at least next year.
However, the negative macroeconomic impacts of high inflation on household income will be mitigated by relatively stable labor markets and strong employment, Munich Re forecast.
Global economic growth is expected to be relatively low this year, according to the report. However, both the general mood and the economic data releases have seen some improvement in recent weeks.
danger of stagflation
High inflation and falling real incomes are putting significant pressure on the demand for consumer goods, especially in industrialized nations. Furthermore, the strong recovery in consumption seen after the 2020 COVID-induced recession is now coming to a halt.
Munich Re predicted that Europe and the US would likely experience stagflation: almost no economic growth combined with high inflation. However, relatively strong labor markets should keep the economy from slipping into recession, the report predicted. Real growth in the US and the Eurozone is expected to exceed 1% next year.
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With growth stagnating in Europe and the US, global economic growth this year will be driven almost exclusively by emerging markets, with China resuming its role as a growth engine, Munich Re forecast. wave of COVID-19 and problems in the real estate market continue to stifle economic development in China. While growth is expected to improve somewhat compared to the 3% level of 2022, the projected 4-5% growth is still well below growth rates seen in the past.
Russia’s invasion of Ukraine in 2022 raised fears that natural gas supplies in Europe could be restricted and a severe recession looming. Those fears have so far proven unfounded, Munich Re reported. However, the effects of record energy prices last year will continue to weigh on growth and inflation rates this year, especially in Europe.
In addition to the war in Ukraine, rising tensions in the Middle East and between the United States and China also pose significant geopolitical risks, Munich Re said.
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