The United Kingdom is only one of two G7 countries predicted by the IMF to contract in 2023. Spring forecasts estimated a mild recession in 2023, followed by a moderate rebound in 2024. The labor market remains tight but shows signs of easing. Inflation decreased by less than expected in March, to 10.1%. France and Italy kept their rates of 0.7% and 0.6%, respectively. The figures mask the usual eurozone heterogeneity: while Spain saw its 2023 growth rate improving from 1.1% to 1.5%, Germany entered negative territory, with an expected decline of 0.1%.
Inflation slows where energy prices declined, although food prices remain high the eurozone reports a trade surplus. The latest IMF projections are less optimistic than the ECB’s. Members of Congress proposed new legislation-the Limit, Save, Grow Act-that would set discretionary spending levels for the coming year at fiscal year 2022 levels and limit spending growth to no more than 1% per year.Įurozone. At the Federal Open Market Committee meeting held March 21–22, 2023, participants’ median projections for GDP growth were 0.4% and 1.2% for 20, respectively-down from December’s projection of 0.5% and 1.6%. The Fed continued with a rate rise in May. Inflation edged down to 5.0%, with energy prices contributing to this decline. Eurozone inflation slowed to 6.9% in March (8.5% in February), and the ECB estimates inflation will reach 2.8% by the end of 2023. On May 3, as anticipated, the Fed raised rates to a target range of 5.0–5.25%.
In advanced economies, US inflation edged down, in part due to energy prices. Respondents were much less positive than they were in early March about current global conditions and the global economy’s prospects-though they were still more upbeat than they had been in the previous quarter (Exhibit 3). However, by the end of the month, that optimism had fallen away. And 45% said that they expected global conditions to improve in the months ahead, while only 28% predicted that conditions would worsen. In early March, respondents were more positive than they had been in several quarters: 40% said that global economic conditions had improved in the previous six months, the first time in a year that respondents were more likely to report improvements than declines. McKinsey’s latest snapshot of global economic conditions surveyed executives twice in March: immediately before the upheavals in the banking sector, starting with the closure of SVB, and then again three weeks later. This volatility in the banking sector is likely one of the factors to have affected wider economic sentiment. First Republic was taken over by JPMorgan Chase on May 1 and banking sector shares remain volatile.
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Customers with large balances were concerned their funds would not be covered in full by the Federal Deposit Insurance Corporation. In April, fears of a resurgence in banking turmoil were reignited as shares in the bank, known for catering to high-net-worth individuals, lost more than half their value on news that customers had pulled more than $100 billion in deposits. However, ratings agencies also downgraded the credit rating of a third medium-size bank, San Francisco-based First Republic, citing a surfeit of uninsured deposits. In March, swift action by banking authorities and the wider banking sector prevented potential contagion across the global banking system following the collapse of Silicon Valley Bank (SVB) and Signature Bank in the United States, and the distressed sale of Credit Suisse in Europe. Rising rates have seen existing holdings of government bonds fall in value, leaving smaller banks especially vulnerable as the value of their assets drops, potentially generating losses when they have to sell these securities. Interest rate rises have also resulted in volatility in the banking sector.
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