With significant difference across countries, global growth is likely to slow down to +1.4% in 2023 and recover modestly to +2.8% in 2024. Advanced economies are heading toward a mild recession of -0.1% in 2023, followed by a rebound to below-potential growth of +1.5% in 2024.

Although the Eurozone will most likely be able to avoid gas rationing, persistently high energy prices will bring recession with the new year. Allianz economists expect a bottom-out in the first half of 2023, followed by a shallow recovery and anticipate only a modest pick-up in 2024-25 for countries with a higher dependence on gas and larger manufacturing sectors (like Germany).

Thanks to mainly strong exports and a large backlog of previously unfulfilled orders in the manufacturing sector, coupled with steady consumption, the U.S.’s economy has proven to be resilient although it is facing rapid monetary tightening and elevated inflation. “Both Europe and the U.S. are heading for a mild recession in 2023. But while 2024 could bring about a recovery in the U.S., the Eurozone could still be stuck in a muddle-through scenario because of the energy stop-and-go,” says Ludovic Subran, Allianz Chief Economist.

China’s growth will most likely be negative in the last quarter of 2022, but is likely to slowly grow in the first quarter of 2023. Strong global headwinds and additional domestic challenges as well as political uncertainties will hit emerging markets (EMs) and developing economies (DEs) in various country-specific ways. Central and Eastern European (CEE) countries will be most affected as they face an energy-supply crisis on top of the energy-price crisis. Many DEs in Africa and Asia as well as non-commodity exporters in the Middle East will also continue to suffer from the food- and energy-price surge and are especially vulnerable to increased social risk as a result. Major emerging markets in Latin America will benefit from the commodity price boom and a strong job market.

Global trade continues to slow down as industrial activity recedes despite easing supply-side constraints. Global trade in goods and services is expected to grow by only +0.7% in volume terms in 2023 and to contract by -1.3% in value terms.

Uncertain gas supply and rising energy and food prices continue to be a heavy burden for consumers. A crisis in one area seems to be sparking a crisis in another, engulfing us all in what seems to be one continuous crisis or permacrisis.

Permacrisis, the Collins Dictionary’s word of the year 2022, is described as an extended period of instability and insecurity. This concept has its roots in contemporary systems theory, which claims that a crisis can become so complex that its outcome can be hard or even impossible to predict. It is something that the famous French philosopher Edgar Morin describes as a network of interlocking systems in which a crisis in one of those systems gives rise to a crisis in all the other systems.

How well Europe—the center of the energy crisis—holds up, will depend on how the set of all the interlocking problems develops going forward: how severe the winter turns out to be, how well-established EU’s solidarity is, and how efficiently the corporates detach themselves from Russian gas.

Going forward, Europe will have to find solutions for the redesign of national energy markets and the compatibility of different energy infrastructures. Scaling up investment in renewable energy infrastructure and viable alternatives to pipeline gas will also be essential, but it will require time. In the meantime, mitigating the impact of the energy crisis will require a coordinated fiscal policy response.

The majority of the current fiscal measures in Europe have been extended into 2023 for a total of more than 3% of GDP on average (close to 5% of GDP or more than EUR 600 billion since September 2021). In most countries, the total measures (e.g. price caps, energy tax cuts, liquidity and equity injections, state-guaranteed loans and furlough schemes) amount to around half of the COVID-19 packages. With the energy crisis, EU governments are expected to increase spending further.

With rising uncertainty, business confidence is also decreasing. In addition, the layoff cycle has kicked off, given the rise in labor costs, especially in sectors that experienced a strong boom during the pandemic, such as technology.

Although central banks remain determined to fight inflation, it will continue to remain high over the near term, averaging 6.4% at the global level in 2023 before receding to 3.9% in 2024. In advanced economies, inflation is expected to reach 4.7% in 2023 (down from 7.4% in 2022). Continued wage pressures coupled with persistently high energy and food prices will keep inflation at 2.4% until late 2024, especially in Europe. Inflation in emerging markets will decline to only 8.5% (from 10.4% in 2022) and remain elevated at 5.9% in 2024.