- The US is on course to drive global demand, but the situation is challenging for China and Europe.
- China’s weak consumption and investment will push growth down to 5% or below this year.
- Yet, given is scale, China will still account for 20% of global growth in 2023.
- Europe has slowed, as expected, with Germany heading into recession territory.
- US will account for 29% of global growth this year, pulling way ahead of the rest.
Commentary: Can US outperformance prop up the global economy?
The global economy is undergoing contrasting developments. China was supposed to rebound sharply this year on the back of post-pandemic recovery, but it has underwhelmed so far, with growth, despite favourable base effects, likely to come in at 5% or lower this year. This sets China for an even lower GDP growth print next year. China’s lower than expected developments have weighed in on commodity prices and global goods trade. With inflation all but disappearing, China’s addition to the global nominal GDP (real GDP plus GDP measure of price changes) is also likely to be disappointing. Still, as a testament to its scale, China will account for a fifth of global demand this year.
Europe has slowed, as expected. Growth is likely to come in well below 1%, perhaps closer 0.5% this year, with Germany, its largest economy, projected to contract. Elevated inflation, sharp rises in borrowing costs, still-high energy costs, and lacklustre export demand have hurt European manufacturing.
India, presently the darling of emerging markets, is on track to receive substantial Foreign Direct Investment and portfolio flows, and its asset markets are buoyant, but the economy is unlikely to keep pace with last year, growing by about 5.5-6% this calendar year. Some of the post-pandemic rebound in demand has faded, high inflation has hurt consumption sentiments, and fiscal has gone on consolidation mode. We expect India to contribute about 7% to global demand growth.
Then there is the US, on course to be yet again the largest source of global demand, despite the burden of ever rising interest rates. We estimate that the US will account from nearly 30% of 2023 global GDP growth, about a tenth more than we had thought likely at the beginning of this year. Thanks to its outperformance, global growth will remain over 3% this year (it was 3.5% in 2022).
US outperformance cannot offset the entirety of China and Europe’s sub-par outcome this year, and its capacity of prop up global demand is likely to decline going forward. Without a bottoming of demand in China and Europe, another year of 3%+ global growth in 2024 is rather unlikely, we think.
Case in point, global electronics trade. US is going through an AI boom, its consumers remain flush with cash, and yet, electronics exporters have been seeing subdued or declining demand worldwide. Similarly, the commodity markers are clearly not feeling the buoyancy in US demand. US has a good thing going, but it looks like the markets are not sure how long the party would last.
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