Economies in Asia-Pacific will dominate global growth in the upcoming year, according to S&P Global Market Intelligence.
S&P predicts the region will achieve real growth of roughly 3.5% in 2023, while Europe and the U.S. will likely face recession.
“Asia Pacific, which produces 35% of world GDP, will dominate global growth in 2023, supported by regional free-trade agreements, efficient supply chains, and competitive costs,” S&P said in a note.
The firm trimmed its growth forecast for global real GDP by 0.6 percentage point from last month’s forecast of 2% — and now expects to see 1.4% growth in 2023. That’s a steep decline from 5.9% global growth in 2021 and even slower than the 2.8% growth S&P expects for 2022.
While a negative outlook outside Asia-Pacific casts a shadow on the overall global economy, S&P forecasts the world will likely be able to avoid an outright recession.
“With moderate growth in Asia-Pacific, the Middle East, and Africa, the world economy can avoid a downturn, but growth will be minimal,” said Sara Johnson, executive director of economic research, S&P Global Market Intelligence.
“Global economic conditions continue to deteriorate as inflation remains uncomfortably high and financial market conditions tighten,” she said, adding that Europe, the United States, Canada and parts of Latin America – are likely to see a recession in the coming months.
The firm added that Southeast Asia and India would benefit from diversifying its trade “away from mainland China.”
In a time of market volatility, India has benefited from having an outlier economy and seeing comparatively robust growth.
Data from the CNBC Supply Chain Heat Map shows China is losing more of its manufacturing and export dominance, significantly driven by its zero-Covid policy.
Given its expectations of inflation moderating and monetary policies easing in the coming years, S&P says it expects global real GDP to pick up to 2.8% in 2024 and 3.0% in 2025.
Economies in Europe and North America, which account for more than half of the world’s output, are likely to face recession in late 2022 and early 2023, S&P said.
“Exceptionally high inflation is draining purchasing power and will lead to declines in consumer spending,” it said in the note. “Both Europe and North America will face the impacts of softening demand and tightening financial conditions on housing markets and capital investment.
S&P said the forecasted contractions in U.S. and Europe will also likely have spillover effects throughout the world through trade and capital flows.
Fitch Ratings is also expecting the U.S. economy to enter “genuine recession territory” in the second quarter of 2023, though said it would be comparatively mild by historic standards.
“The projected recession is quite similar to that of 1990-1991, which followed similarly rapid Fed tightening in 1989-1990. Nevertheless, downside risks stem from nonfinancial debt-to-GDP ratios, which are much higher now than in the 1990s,” said Olu Sonola, head of U.S. regional economics.