Outlook 2023 - The 2022 Global Economy in Retrospect

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The Many Faces of Nigeria in 2023: Understanding the Economics of Change
Report Summary: 2023 Macro Economic Outlook - The Many Faces of Nigeria in 2023: Understanding the Economics of Change

The 2022 Global Economy in Retrospect

Slower Global Growth

GDP growth declined to 3.2% from 6% in 2021, with Advanced economies slowing to 2.4% in 2022 from 5.2% in 2021. Emerging Markets and Developing Economies on the other hand recorded a 3.7% growth in 2022 this represents a 2.9 percentage point decline from the 6.6% growth recorded in 2021. Growth in Sub-Saharan Africa slowed to 3.6% while ASEAN-5 and India supported global growth with (5.3%) and (6.8%) real GDP growth respectively.

Higher Average Inflation

Global inflation rose to 8.8% in 2022 with the most adversely affected being the EMDEs (9.9%) while Advanced economies also saw a leap in inflation to 7.2%. Overall, higher levels of global Inflation, which were induced by energy and wage growth, pinched household savings and demand in 2022. The ASEAN-5 again outperformed other analytical groups with a relatively low 4.1% average inflation rate.

Monetary Policy Normalization

The US set the pace of rate hikes for other western economies in 2022. Rising lending rates slowed down factory activity as well as private sector productivity in interest rate-sensitive sectors. Likewise, there are worries that the struggling real estate market in several nations might become more widespread and affect banks and the macroeconomy. Also, the wave of monetary tightening in some countries and accommodative monetary policy in others, meant that the USD dollar and several other currencies firmed up while the Yen, Yuan, and a few others declined in value, as investors. Successive rate hikes have meant that Interest rates rose to 4.25% - 4.5% in the US. In the Eurozone, rates rose for the first time from the negative range in 14 years to 2.5%. The same pattern was observed in Canada. Conversely, the Peoples Bank of China repeatedly reduced the one and five-year loan prime rates to support the ailing economy (see table below).

Table 1:

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Declining Global PMIs

Meanwhile, global PMI figures declined steadily as financial conditions tightened. As central banks responded increasingly vigorously to the above-target inflation, labour market conditions tightened, and unemployment rates fell to their lowest in many years as service sector inflation kept prices up. Private sector productivity slowed on the back of higher costs and declining consumer confidence.

Higher Average Crude Oil Prices

The average annual price per barrel of Brent crude in 2022 was $81, which is 12.7% higher than the $7/b benchmark in 2021. The WTI crude averaged $75/b in 2022, 10% higher than the $67.99/b benchmark in 2021. Meanwhile, oil prices swung widely in 2022 on the back of tight supplies amid the war in Ukraine as well as weakening demand from major importers namely China as well as a broad-based fear of a global recession.

Recovery Global FDI

Global flows of foreign direct investment were as of H1 2022, 14% higher than the $825bn registered in the corresponding period of 2021. UNCTAD data suggests that FDI flows recovered to pre-pandemic levels in 2021, reaching $1.6 trillion. In Q2 2022, however, flows to developed economies were estimated at $137bn, 22% lower than the quarterly average of 2021. FDI flows to developing countries proved more resilient, increasing by 6% to $220bn.

Russian Invasion of Ukraine

The Russian invasion of Ukraine in February 2022, and the ripple effects it has had, from an increasing number of international sanctions to the disruption of global trade and supply chains, have exacerbated the pre-existing challenges occasioned by the Covid 19 lockdown, and the trade tensions between the US and China.

The Rise and Fall of Global Trade

In the first half of the year, global trade further consolidated on the recovery in 2021 as trade in goods and services for 2022 is estimated to have reached $25trn and $7trn respectively. By Q3 2022, however, geopolitical frictions, persisting inflation, and lower global demand altered the pattern of the series. Economists expect that global trade in 2023 would be equally affected by the conflict in Europe as well as the rising fear of global recession (see illustration 4 below).

Illustration 4:

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