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

The 2023 Global Economy in Focus

“Global growth is projected to decelerate sharply this year, to its third weakest pace in nearly three decades, overshadowed only by the 2009 and 2020 global recessions.                    

                                                                                                 - World Bank Group

Global Recession: Deep or Shallow?

Economists have cut the growth forecast for 2023 to 2.7% with experts’ consensus projecting a recession that could start as early as Q1 2023. Expert opinions are however split on whether the recession in 2023 would be long or short; deep or shallow. Some are of the view that the high levels of global inflation will require a major slowdown and a much larger amount of unemployment to tamp down inflation. Others say that a weakened economy would not necessarily imply a lengthy, or deep, period of contraction. We are persuaded by the strength of the housing sector, and global financial system stability that the recession would be a mild one. Economist consensus suggests that the US may register a 1% growth this year, while the Euro Zone may manage a 0.5% growth. China’s reopening raises hopes that growth could rebound to 4.5% in 2023 from 3% last year (see illustration 5 below).

Illustration 5: 

Inflation to Moderate

Global Inflation is set to fall quickly from 8.8% in 2022 to 6.5% in 2023. Already Inflation has begun to moderate in economies like the United States (US) where inflation is believed to have peaked, and the long-term inflation expectation is well anchored. US December inflation came in as expected at 6.5% down from a record 9.1% in June. Inflation has also moderated in the Eurozone as Eurozone consumer expectation for inflation declined in November on the back of declining energy prices which are expected to continue to decline to an $88/b average in 2023. The inflation worries in EMDEs may however be different given that Currency driven inflationary pressures which would abide are more prevalent in such economies.

Global hiking cycle to reach terminal rates.

As policymakers continue their fight against inflation, more increases from central banks are expected in Q1 2023. However, with the market currently pricing a terminal rate at 5% in the US, about 4.5% in the UK, and close to 3% in the eurozone, the potential for more positive surprises is considerably reduced moreso inflation has started to slow down.

Price Caps, Friendshoring and De-globalization

Democratic countries and their most important allies would shift their dependence from dictatorships to democracies. The impact of the war in Ukraine has already caused many countries to reduce their reliance on Russia. The G7, EU, and Australia last December placed a ceiling on the price of Russian oil. In response, Russia would respond by re-routing most of its supplies to India, China, and other Asian countries at discounted prices (see illustration 6 below).

Illustration 6:  

China’s Great Re-opening

After 1016 days of lockdowns to curb the spread of covid-19, China opens its borders to the rest of the world. Household consumption is expected to rise by 9% from travel and restaurants this year. Households are said to have saved one-third of their income in 2022. The Re-opening will also support China’s troubled property sector, depending on the broader policy planks of the government. But in the most optimistic scenario, the property sector could grow by 3% in 2023 and add between 0.9% and 1.5% to the overall GDP of China. Global commodity and energy prices would not be upwardly nudged by China’s re-opening, because it would only be picking up the volumes cut by other countries. In terms of investment, China’s economy is expected to record a swift return of inflows upon its reopening.

Global FDI

Greenfield FDI is expected to continue to decline in 2023. The economic turmoil of 2022 as well as the implementation of international taxes will turn out important risk drivers for FDI levels, especially in H1 2023. At the same time, the ongoing war in Ukraine will continue to present global economic pressures that would inhibit FDI flows.  In 2023, the rebalancing of trade and investment partners will be more apparent; significant issues being the IT sector, energy redistribution, reorganization of Russian operations, and friendshoring or diplomatic re-alignment. Meanwhile, high growth prospects such as in the Emerging Market and Developing Asia and the ASEAN-5 would be major investment destinations in 2023.

Sectors to Pick up.

Manufacturing sector headwinds would affect construction, building, and real estate, while services would still benefit from normalization. Housing market activity is likely to stay low with mortgage rates high. Labor markets would start to loosen amid slower growth environments (see illustration 7 below).

Illustration 7: