What’s next for the global economy?

Paul Bloxham Illuminate Event

It’s the million-dollar question and not a simple one to answer, with so many variables in the mix. So to get the lowdown, we turned to HSBC’s Chief Economist for Australia, New Zealand and Global Commodities - Paul Bloxham.

There are so many seemingly mixed messages out there,” said Paul Bloxham. “Business growth is good and unemployment is low, which is great. But inflation is the highest we have seen it since the 1970s. As a general rule global central banks like to keep inflation at about 2%, but it’s running at 8.5% in the United States and 10% in Europe.

As a result, the global economy is facing a range of challenging economic factors that will clearly continue into 2023. These are some of Paul’s key observations and predictions for the year ahead.

Inflation rising globally

Expect inflation to continue to be an issue and the Reserve Bank is likely to lift interest rates another 50 basis points by end of year. But in good news for some and not so good for others, house prices are expected to continue to fall in 2023.

Savings and demand are up

Australia and New Zealand did fairly well during COVID. Normal household savings rates are usually about 5% of income, however during COVID Australian households saved 23 per cent and now they want to spend it – which is pushing up demand and prices.

However border closures kept around 500,000 international workers out of the country, which is why businesses can’t find enough workers. In fact, Australia had its first fall in annual population growth since 1916.

Interest rate roulette

To stimulate growth and demand, the government has focused on keeping interest rates low in recent years. This worked and consumer demand was high, but along came the unforeseen pandemic and severe supply chain constraints pushed up costs and inflation. The supply issues are slowly improving, but the government has switched to policies to slow demand down by lifting interest rates and taxes.

US economic impact

This is the largest economy in the world, but wage growth has increased, there are supply chain blockages and inflation is high. The $USD remains strong, but interest rates are currently 4.75% as the Federal Reserve Bank tries to dampen demand. As a result, the US is facing another difficult year in 2023.

Europe and Asia

Inflation is high in Europe and this is partly due to the war in Ukraine, which is pushing up commodity prices and especially energy costs. These challenges are expected to continue into 2023.

Asia mostly thrived during the pandemic as consumers in western countries had money to spend on the goods they manufacture, because they couldn’t spend it on travel. Now that demand is slowing as people travel again and spend money on activities such as dining out. China’s strict COVID Zero policy is slowing down its domestic economy.

Catch up on the full insights session with Paul here >>