Global economic growth will continue to slow in 2023: Moody's

In 2023, Moody's Investors Service anticipates that the cumulative tightening of monetary policy by various central banks will cause global growth to continue to slow.

In its global macro outlook titled "Global economic risks persist despite recent positive surprises," Moody's stated that the tightening of monetary policy will have a negative impact on economic activity and employment in the majority of major economies.

Moody's outlook

"We forecast G20 global economic growth will downshift to 2.0 per cent in 2023 from 2.7 per cent in 2022, and then to improve to 2.4 per cent in 2024," it said in the outlook report.

Inflation, the report said, will continue to moderate, but a sustained decline to central bank targets is not guaranteed.

For instance, inflation in the US moderated to 6.4 per cent in January from 6.5 per cent in December, and 7.1 per cent the previous month but still is way above the 2 per cent target.

The policy rate of the US central bank is currently in its target range of 4.50–4.75 percent, which is the highest level in 15 years. Of note, it was almost zero in the early months of 2022.

Raising interest rates

An instrument of monetary policy that typically works to reduce demand in the economy and lower inflation is raising interest rates.

According to the report, advanced economies will experience inflation that is higher than central bank targets for the majority of 2023 and 2024.

"Our expectation that inflation will continue to fall through next year across most G20 economies is contingent on a moderation in demand facilitated by central bank actions," Moody's said, adding that central banks will keep interest rates restrictive for longer than the financial markets expect.

"While there is a clear sense that the end to monetary policy tightening is near, how many more interest rate increases will be appropriate and how long rates will remain restrictive is unknown. The Fed and other central banks would be forced into even more aggressive policy tightening if loosening financial conditions undermine their efforts to subdue aggregate demand," it added.

With inputs from Agencies.