Inflationary pressures began to ease and global energy prices fell in the early months of 2023, leading to cautious optimism from KPMG’s annual economic forecast.
The UK is less likely to face recession and the forecasted performance of the world economy improved in the early months of this year, according to KPMG’s Global Economic Outlook for 2023 and 2024.
Inflationary pressures began to ease internationally, and global energy prices returned to levels last seen prior to the invasion of Ukraine, according to the accounting firm’s guide, published in March.
KPMG expects headline inflation to continue falling this year – from 7.4% in 2022 to 5.3% in 2023 – to potentially reach central bank targets in 2024.
The accounting and advisory firm’s report provides forecasts for growth, inflation and unemployment for 34 countries and economic areas.
Global economic growth is expected to be “relatively modest” over the next two years.,
After GDP growth of 3.1% in 2022, KPMG expects growth of 2.1% this year and 2.6% in 2024.
Unemployment is expected to remain roughly level at 5.2% in 2023, on aggregate, looking across those countries.
KPMG said it expects labour markets to “remain relatively tight across most countries”, which will provide support for household incomes and consumer spending, despite the squeeze on real incomes caused by recent inflation.
In the UK, the probability of a recession has fallen, according to KPMG’s analysis.
GDP growth was 4.0% in 2022, but is expected to fall into negative territory (0.3%) this year.
The slight overall shrinkage follows a squeeze on household real incomes and the impact of past interest rate increases.
Structural issues, including skills shortages, slowing workforce participation, and an ageing population, dominate the longer-term risks to the UK’s outlook.
Growth is anticipated to remain weak in 2024, forecasted at 0.6%, KPMG added.
“How we get back to sustainable, long term growth is the big question facing boardrooms and political chambers around the world right now,” said Regina Mayor, global head of clients and markets, KPMG International, in the report’s foreword.
“Some of the biggest inflationary fears – widely predicted late last year – have been mitigated by more direct, pro-active political action geared especially towards getting rising energy prices down,” said Mayor.
There are also signs that other commodities and food prices are finally starting to ease, she suggested, helping consumers and business owners who have been facing a significant financial squeeze.
The actions taken over the coming months are likely to play a significant role in the pace and nature of the world’s economic recovery, Mayor suggested.
“KPMG’s analysis forecasts that employment levels should remain robust, even given recent tech layoff announcements – a sign that the tightness of the labour market faced post-pandemic shows no sign of easing,” she said.
“It’s an indication of the complexities the world faces today. Strong employment figures are often held up as an example of buoyant market conditions, but they can also reflect the challenges central banks are facing as they attempt to juggle wage expectations, tightened credit conditions and the ever-present danger that any shift in the conflict in Ukraine could bring inflation back into the mix,” continued Mayor.
“The upside of a strong labour market, combined with relatively strong personal savings among consumers – especially in Europe and the Americas – means we could start to see a return to robust consumer spending, driving a return to slow-but-steady domestic growth in key markets. KPMG’s Global Economic Outlook is a forecast. It’s based on detailed analysis of trends and models from KPMG firms’ economic specialists across the world,” she said.
“Digging deeper into the numbers isn’t an exact science, but it can offer a good indication of what may lie ahead and should help to equip business leaders with a greater understanding of what lies behind today’s complex marketplaces, enabling them to develop more robust strategies focused on the ultimate goal of a return to sustainable, global growth,” Mayor added.