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    RESEARCH  |  3 POINT PERSPECTIVE  |  MACRO SHIFTS

    Q3 2023 Global Outlook: The US, and then the rest

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    Contributors: Ajay Rajadhyaksha & Amrut Nashikkar

    22 Jun 2023

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    The world economy is softening but not collapsing, supported by a resilient United States. Inflation is declining, but frustratingly slowly, and Western central banks should remain hawkish. The coming quarter will be one of consolidation in markets, according to our Research analysts.

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    Contributors: Ajay Rajadhyaksha & Amrut Nashikkar

    22 Jun 2023

    Client log-in for full report
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    An American flag flying in front of an office building
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    1. Growth is looking fragile, except in the US

    China’s recovery has disappointed greatly in the second quarter. Our analysts do expect a mild bounce in the second half of 2023, as policy easing kicks in. But they have lowered their full-year GDP growth forecast for China to 5.3%. The euro area is already in a technical recession, and the rest of the year should see stagnant growth.

    In the US, the picture is brighter. The economy has largely shrugged off the March banking crisis and all indications are of growth near trend. Activity should slow eventually as the Federal Reserve tightens further. But with companies and households in excellent shape, our analysts expect only a mild US contraction.

    All in, the team’s growth forecast for 2023 has not changed much since the Q2 Global Outlook; with the world economy expected to grow 2.7% this year, a step down from 3.3% in 2022. But the regional patterns have shifted significantly.

    Q2 2023 Global Outlook: This too shall pass

    Read our Research analysts’ Q2 outlook for the global economy, exploring the fallout following recent banking turbulence.

    2. Price pressures are still a worry, almost everywhere

    Major central banks have repeatedly had to revise up their forecasts for inflation, and both the Fed and the ECB did so again this month. Our analysts expect inflation to head lower in both regions, but core inflation should stay uncomfortably high – around 3.5-4% – entering 2024. Even in Japan, inflation is widespread enough that an exit from the central bank’s ultra-easy policy is looming.

    Recent surprise interest-rate hikes by the Bank of Canada and the Reserve Bank of Australia are warning signs, in that context. Investors expecting central banks to make a quick pivot to easing cycles are likely to be disappointed.

    3. The third quarter should be largely about trading ranges – in both stocks and bonds

    A sense of American exceptionalism has been reflected in US stock markets, where the S&P500 index led global equities into a new bull market in early June. Some of that move is being driven by excitement over machine learning and AI, with mega-cap tech stocks the beneficiaries. But our analysts are skeptical of the idea that productivity will suddenly surge. History tells us that it takes many years, if not decades, for technological breakthroughs to affect productivity at an economy-wide level.

    That means that central banks are going to have to solve the challenge of sticky prices and high wages the old-fashioned way: by staying in restrictive territory for much of the next few quarters. That is one reason why our analysts are not enthusiastic on risk assets: with cash yielding above 5%, it should be hard for equities to rally further from elevated levels. Meanwhile, they find it hard to recommend bonds, with inflation persistent. Major assets are likely to trade in a range.

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    About the experts

    Ajay Rajadhyaksha

    Global Chairman of Research

    Ajay Rajadhyaksha is Global Chairman of Research at Barclays, based in New York. He drives the global macro research and strategy effort, including economics, rates, FX, commodities, emerging markets, and asset allocation. Since joining Barclays in 2005, Ajay has held various positions, including Head of Macro Research, Co-Head of FICC Research and, before that, Head of US Fixed Income Research and US and European Securitised Research.

    Amrut Nashikkar

    Managing Director, Fixed Income Strategy

    Amrut Nashikkar is a Managing Director in the Fixed Income Strategy team at Barclays based in New York, covering interest rate derivatives with a focus on interest rate volatility and the Libor transition. Amrut joined Barclays in 2008 from Lehman Brothers, where he was an interest rate strategist. Prior to that, he taught at New York University, where he graduated with a PhD in finance. He also holds a management degree from the Indian Institute of Management, Ahmedabad, and an undergraduate degree in engineering from the Indian Institute of Technology, Kharagpur.

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