According to Daniel Lacalle, author and chief economist at Tressis Gestion, the global economy is likely to face a decade of sluggish growth.
Economies around the world have grappled with a variety of shocks – from Russia’s invasion of Ukraine to China’s ongoing zero-Covid measures – that have sent inflation spiking and activity weakening.
The International Monetary Fund now forecasts that global GDP growth will slow to 3.2% in 2022 and 2.7% in 2023 from 6% in 2021. The fund described this as “the weakest growth profile since 2001, barring the global financial crisis and the acute phase of the Covid-19 pandemic.”
Meanwhile, global inflation is forecast to rise to 8.8% this year from 4.7% in 2021, before falling to 6.5% in 2023 and 4.1% in 2024, above the Target values of many large central banks remain.
China offered some solace to economists and market participants on Tuesday when it officially announced the end of quarantine requirements for inbound travelers on Jan. 8 — a symbol of the end of the zero-Covid policy it has followed for nearly three years.
Speaking to CNBC’s Squawk Box Europe on Tuesday, Lacalle said the potential for a full reopening of China’s economy is “the biggest positive” markets could expect for 2023.
A screen shows the Fed’s interest rate announcement as a trader works on the floor of the New York Stock Exchange (NYSE) on November 2, 2022.
Brendan McDermid | Reuters
“We have seen a very bleak picture for the Chinese economy, which is crucial not only for the growth of the rest of the world but especially for Latin America and also for Africa,” he said.
“The reopening of the Chinese economy will certainly provide a significant boost to growth around the world, but also – and I think this is a very important factor – German exporters, French exporters have felt the lockdown and the weakening of the earnings environment in China, and that will definitely help a lot.”
However, he hinted that this boost is nowhere near bringing the level of growth back to where it was in the pre-pandemic years.
“I think we’re probably going to enter a decade of very, very poor growth where the developed economies will be happy growing at 1% a year if they’re able to, and more unfortunately anything other is associated with increased inflation,” Lacalle said.
“I think we are seeing the backlash of massive stimulus packages implemented in 2020 and 2021. That hasn’t delivered the potential growth that many economists were expecting.”
But despite the bleak prospects, he emphasized that no crisis is in sight.
“I think the markets are starting to price in this environment where the situation around the world is not one of vibrant growth and economic development, but [is] one that avoids a financial crisis, and when that happens it’s certainly positive,” he concluded.