In the newly released Big Picture analysis, Danske Bank's macroeconomic team expects the euro area and the US economies to enter a recession in 2023, while China is likely to grow once it leaves its zero-Covid policy behind.

However, the downturn will not necessarily be very deep nor pro-longed.

The global economy has been hit by a series of challenges in 2022: Russia's invasion of Ukraine, towering inflation, rate hikes and Covid-19 lockdowns in China. The challenges have put pressure on global growth, and Danske Bank's analysts now expect the pressure to rise.

'Not all regions of the world experience the same headwinds as they are driven by different undercurrents, but what they have in common is that they are putting pressure on consumers and businesses,' says Aila Mihr, Senior Analyst at Danske Bank and one of the analysts behind the outlook.

The perfect storm in Europe

The euro area is facing the perfect storm and will likely be the first region to slip into recession this winter. Delayed effects from the ECB's monetary tightening and fading foreign demand as well as the ongoing energy crisis are setting the scene for an economic slowdown that will last for some time.

'A crisis is not only a challenge, but also an opportunity. Countries like Germany are stepping up investments in infrastructure, digitalisation and the green transition, which presents a silver lining to the growth outlook, and not least an interesting business opportunity for Nordic companies offering solutions in these areas,' says Aila.

Three highlights from The Big Picture

Inflation remains at elevated levels, but is expected to ease

Germany is challenged, but their need to invest in digitalisation and the green transition can provide companies with opportunities

Headwinds in China until they leave their zero-Covid policy

Download forecast

A gradual recovery for the US economy

In contrast to the euro area, the US is experiencing a more 'traditional' recession triggered by policy tightening in 2023. But without the same structural energy headwinds that are constraining Europe's growth, a gradual recovery towards 2024 could be in store for the US economy.

Asia struggling with its own challenges

In Asia, China and Japan are struggling with their own challenges.

'China's global growth engine is sputtering due to its strict zero-Covid policy, the property market crisis and weaker exports to the US and Europe, which is dampening the near-term growth outlook,' Aila explains and elaborates:

'Once China leaves it's zero-Covid policy behind, which we expect in the second half of 2023, pent-up demand could be unleashed and support growth in 2024. Nevertheless, the US-China rivalry, especially on tech, continues to cast a shadow on the Chinese economy.'

Inflation will drop, but...

Inflation has been on everybody's lips this year and in 2023, the inflation pressure is expected to ease, but remains at elevated levels. Many of the initial inflationary drivers - like supply constraints, high shipping and raw material costs - have started to normalise, pointing to significant global deflationary pressures going forward. The good news in this context is that falling inflation increasingly allows central banks to exit their hiking mode and rate cuts could even be on the agenda for 2024.

(C) 2022 Electronic News Publishing, source ENP Newswire