— Zürich, 13. July 2023, FiPAX —

It is anticipated that global growth will decline from approximately 3.5 percent in 2022 to 3.0 percent in both 2023 and 2024. While the forecast for 2023 is slightly higher than what was projected in the April 2023 World Economic Outlook (WEO), it remains historically weak. The efforts by central banks to raise policy rates in order to combat inflation are continuing to impact economic activity. Predictions indicate that global headline inflation will decrease from 8.7 percent in 2022 to 6.8 percent in 2023 and further to 5.2 percent in 2024. Underlying (core) inflation is expected to decline at a slower pace, and inflation forecasts for 2024 have been adjusted upward.

The recent resolution of the US debt ceiling crisis and previous decisive actions taken by authorities to stabilize the US and Swiss banking systems have diminished immediate risks of turmoil in the financial sector. This has alleviated some of the negative outlook risks. However, the overall risks to global growth still lean towards the negative side. If additional shocks occur, such as an escalation of the conflict in Ukraine or extreme weather events, they could lead to higher inflation and potentially necessitate tighter monetary policies. Renewed turbulence in the financial sector could arise as markets adjust to further tightening of central bank policies. China’s economic recovery could slow down, partly due to unresolved real estate issues, which might have negative effects across borders. Concerns about sovereign debt distress could spread to a broader range of economies. On a positive note, inflation might decrease more rapidly than anticipated, lessening the need for strict monetary measures, and domestic demand might prove more resilient.

In the majority of economies, the primary focus remains on achieving sustained reduction in inflation while also ensuring stability in the financial sector. Therefore, central banks should maintain their attention on reestablishing stable prices and enhancing oversight and risk monitoring within the financial system. In case of potential market stresses, countries should swiftly provide liquidity while also addressing the possibility of moral hazard. It is also advisable for them to build up fiscal reserves, with adjustments to fiscal policies aimed at providing targeted assistance to the most vulnerable. Enhancements to the supply side of the economy would facilitate fiscal consolidation and a smoother transition of inflation towards target levels.