Global economic outlook: February 2023

The shocks that buffeted the global economy in 2022 and sent global inflation to a near three-decade high above 9% should dissipate in the year ahead. Inflation in the US, euro zone and the UK has already fallen from peaks of around 10% in the second half of last year and should continue to decline steadily in the months ahead. But how quickly it falls will depend in part on the relative importance of supply and demand factors that have driven prices higher over the past two years.

The US economy has most clearly been facing a situation of excess demand and an extremely tight labour market, with more job vacancies than unemployed workers to fill them. Wage growth remains higher than is consistent with the Fed’s inflation target, but it has slowed enough to allow the Fed to shift down a gear at its February meeting, when it announced a 25 basis points (bps) hi