Agência para o Investimento e Comércio Externo de Portugal


GDP forecasts improve; central banks sustain inflation battle amid cost-of-living crisis; China further eases pandemic restrictions, noting risks.

Forecasting institutions have retained relatively positive growth estimates for 2022, mainly based on better performance in the first half of the year; estimates for 2023 were also made less dire. In its latest Economic Outlook report (November), the OECD, for example, estimates 3.1% global GDP growth in 2022 and 2.2% in 2023. Growth estimates for surveyed advanced economies are 1.8% in the United States in 2022 and 0.5% in 2023; for the eurozone, 3.3% and 0.5%; and for the United Kingdom, 4.4% and −0.4%. The OECD estimates for emerging economies are, for China, 3.3% in 2022 and 4.6% in 2023; for India, 6.6% and 5.7%; for Brazil, 2.8% and 1.2%. The slightly improved estimates for 2023 are consonant with recent findings from McKinsey’s own economic conditions survey.


The OECD also estimates that the global inflation rate for 2022 will be 9.4%, moderating to 6.6% in 2023. The battle against inflation is being led by central banks in developed economies, down to their final policy committee meetings of the year. In December, these institutions, in the United States, the eurozone, and the United Kingdom, announced 50-basis-point hikes in policy interest rates. The tightening moves bring the US Federal Reserve’s chief policy rate of 4.25% to 4.50%, the highest range since 2007. The range of the European Central Bank (ECB) is now 2% to 2.75%, and the Bank of England (BoE) has taken its base rate to 3.5%. These are the highest levels set by the ECB and BoE in 14 years. The inflation target remains 2% for all three banks, and officials and forecasters are predicting further rate hikes will come in 2023. US Federal Reserve chair Jerome Powell suggested that his institution was willing to risk recession in order to bring inflation closer to the target.


Consumer inflation has been slowing in the United States for several months, and reached 7.1% in November. In the eurozone and the United Kingdom, the inflation rate only recently eased, to 10.1% and 10.7%, respectively. However, signs of further improvement in December are now appearing: inflation slowed to 5.6% in Spain (from 6.7%), 6.7% in France (from 7.1%), and 9.6% in Germany (from 11.3%). Consumer and producer price inflation are thus generally slowing in the developed economies but remain at levels high enough to constrain consumption (Exhibit 1).


Full article here.


Notable from the individual reports


United States. One area where inflation accelerated is housing. US mortgage rates rose quickly—the 30-year fixed-rate average climbed from below 3% in August to above 7% in November. The average has lately come down, to 6.4% (December 29), but rates are still among the highest seen in 13 years. The median sale price for homes has been volatile, reaching a record $416,000 in July. The price has since fallen to $370,000 (November), a level still 40% higher than the last prepandemic median (National Association of Realtors).

Eurozone. European Union governments are developing policies and funding for energy production while seeking to diversify energy sources. The EU solar photovoltaic industry alliance was launched in December, aiming for an annual output of 30 gigawatts for each key solar component by 2025—more than six times the current capacity. An underwater pipeline between Barcelona and Marseille was announced by Spain, Portugal, and France; by 2030, it could carry two million metric tons of green hydrogen annually.

United Kingdom. By the government’s own estimates, the economy is headed for a recession next year, and living standards could fall 7% over two years, wiping out eight years of growth. Workers in the United Kingdom are responding to the cost-of-living crisis with a wave of strikes. Nurses, ambulance personnel, and railway workers are among those taking actions.

China. Authorities have further lifted COVID-19 restrictions, reducing testing requirements, relieving mobility constraints, and permitting at-home quarantines. China has a high overall vaccination rate (above 90%) and is now seeking to improve the uptake among seniors. The incidence rate for new COVID-19 cases is low, but totals are rising, having reached between 4,000 and 5,000 in the most recent three-day rolling average (to January 3). By comparison, the US totals are above 15,000 for the same period, despite the wide population disparity.

India. The industrial production index retreated by –4.0% year over year in October (+3.1% in September). Most of the reversal came in manufacturing, which declined by –5.6% compared with last year. The PMI for manufacturing tells a different story, however, expanding in both November (55.7) and October (55.3) as inflation eased and demand revived. The services PMI rose as well (56.4 in November, 55.1 in October); export orders for services rose for the first time since early 2020.

Brazil. President-elect Lula da Silva was formally confirmed as Brazil’s next president. The leader of the leftist Workers’ Party (WP) will head a center-left coalition government. He has emphasized poverty eradication, indigenous protections, and reversing Amazon deforestation as major government objectives. The country remains deeply polarized politically. Some tense moments passed in recent weeks, as outgoing President Bolsonaro never conceded the election, and his supporters continued to engage in civil unrest.