Why the IMF, OECD and the World Bank might have their 2023 global GDP forecast wrong

In early January 2023, André shared his views on the global GDP forecasts from some of the world’s leading financial and economic institutions. Here is what he wrote:

“In the last three years, the world economy has faced three major global shocks. The first was the global Covid-19 pandemic which started in 2020. This crisis triggered the biggest disruption of the global supply chain since the 1970s, creating significant imbalances between supply and demand in raw materials, components, goods, services and manpower. This, combined with a surge in energy costs, created the third shock – the return to inflation.

The compounding effect of these three shocks made 2022 a very challenging year for all players in the world economy. The consequence was significant disruption in the bond market and the global stock market, as evidenced by the Dollar-based MSCI World index showing an 18% reduction in Total Returns.

There is no question that a triple shock of this magnitude makes forecasting the global economy for 2023 very difficult given the fact many economic indicators are worrisome: inflation remains high and has not started to reduce significantly, consumer and business confidence indexes are weak, manufacturing and service PMIs (Purchasing Managers’ Index) are down, the strengthening dollar is creating pressure on the balance sheets of countries and companies with high-level dollar-denominated debt, access to debt financing in the corporate world has reduced significantly in the last three quarters and of course central banks are steadily increasing interest rates.

The latest consensus GDP forecast from the IMF, OECD and World Bank estimates that the world economy will grow at 2.2% – a global slowdown driven by a recession in some of the largest economies, as well as debt-defaults in some of the weakest Emerging Markets that have a considerable amount of debt in dollars.

One thing we all have learned since the beginning of the 21st century is that global macro and geopolitical trends can change very quickly in what is a highly inter-connected world economy.

Like many of my CEO peers, I started travelling again in the second half of 2022. This gave me the opportunity to do business face to face with our colleagues and customers, as well as get access to more data points to sense the pulse of the global marketplace.

I took the opportunity to reflect deeply about the state of the global economy during the recent holiday period and am not convinced that the world economy will only grow at 2.2%.

Why?

I see five major global forces which, combined, could boost global GDP growth by 1% in 2023 making 2023 another year of 3%+ GDP growth

First, the reopening of the Chinese economy and lifting of Covid-19 restrictions is the best news of the year from a global economic standpoint. We could see major growth in the domestic and international China tourism market, as well as in the luxury market. This could add between $200bn and $600bn to the World GDP.

Second, all companies have learned in the last three years that they have to invest more to make their supply chains safer and more resilient, that they have major challenges to resolve to make their businesses truly sustainable, and that in an increasingly competitive market they need to step up innovation. These additional corporate investments in safer supply chains, sustainability and innovation could add between $100bn and $300bn to the World GDP.

Third, 2023 will be a much better year for both the automotive and airline industries. In the last few years both industries were impacted by reduced mobility on the global stage driven by Covid-19 and by production capacity constraints when consumer demand for cars and airline travel improved. The growth in these two industries will be good in 2023 which could add between $120bn and $320bn to World GDP.

Fourth, the war in Ukraine has brought back on the global stage the strategic importance of energy security in every single country. At a time where energy companies are focussed on managing the difficult transition to decarbonise their production footprint with less than 10% of the world energy coming from renewables and with little extra-capacity in traditional Oil and Gas to meet the short-term increase in demand, I expect the additional investments in the world of energy to add between $60bn and $130bn to the World GDP.

Finally, the war in Ukraine is a real human tragedy for a country that I love, and my thoughts are with the citizens as they defend their beautiful country. The war has of course triggered additional spending in defence and has raised the geopolitical risks for the world. There is no end in sight for the conflict and I expect the additional spending in defence to add between $50bn and $100bn to the World GDP.

The net cumulated impact of these five significant forces could add between $530bn and $1450bn to the World GDP and taking the median point, we could see an incremental GDP of $1tr to the current consensus forecast, which means that the world economy could grow by 3.3%

That’s why I have a more positive outlook for the 2023 Global GDP forecast than the IMF, OECD and the World Bank.

This is just my view for now. We are only at the beginning of the year and we will know more every month more. Let’s see.”

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