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ECONOMY | 12.07.2023

MAPFRE Economics lowers its global growth forecast to 2.6% in 2023

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  • The global stagflation scenario continues, with growth remaining below its potential, especially in developed economies.
  • Inflation predictions remain stable, with the possibility that central banks will continue to tighten their monetary policy in an effort to bring down the core rate.
  • Growth predictions for the United States are now at 1.3% for this year, with the corresponding forecast for the eurozone at 0.6%, Asia Pacific region at 5.2%, and Latin America at 1.2%.

MAPFRE Economics, which is MAPFRE’s research arm, has lowered its global growth forecast for 2023 to 2.6%, down slightly from the 2.8% estimated in April. It is ruling out entry of the world economy into a recession, in the context of a stagflation scenario with weak rises in GDP and persisting inflation, especially in terms of the core rate. The growth forecast for 2024 has fallen more sharply than the prediction for 2023, specifically, down to 2.3% from the 3% predicted in April and the 2.7% estimated at the beginning of this year.

A report published by Fundación MAPFRE entitled 2023 Economic and Industry Outlook: Perspectives on the Third Quarter explains that the signs of “cautious optimism” that existed at the start of the year with regard to global economic activity have continued to take shape. The positive growth trend is continuing, with moderate but still favorable progress in terms of inflation. This is helping to alleviate concerns about potential problems with the health of the financial system, which had arisen in the wake of rapid normalization of monetary policy and disturbances in the banking sector.

With regard to inflation, predictions remain largely unchanged, with forecasts of 7% for 2023 and 4.9% for 2024, following a rapid moderation in supply-side components, although a booming services sector has caused the core rate to remain at uncomfortable levels. For this reason, MAPFRE Economic Research expects furthering tightening of financial conditions, with additional interest rate hikes in the United States and eurozone.

Predicted growth for this year in the United States is at 1.3%, thanks to strong consumer spending and employment figures, although MAPFRE Economics is still predicting a brief recession period as the fourth quarter approaches, a little later than initially predicted. For 2024, the country is expected to show growth of 0.5%, while inflation is forecast at 4.1% in 2023 and 2.9% in 2024.

Growth forecasts for this year in the eurozone remain steady at 0.6%, despite the poor macroeconomic figures seen during the first quarter and decreasing support from the countries with intensive manufacturing. For 2024, GDP growth of 1% is expected. However, inflation forecasts have risen slightly to reach 5.0% for 2023, while the rate expected for 2024 is substantially lower at 1%, even below the target level for the central banks. In relation to this subject, good news is expected from the industrial sector, although the core rate is still expected to rise slightly, subject to risks related to trends of salary figures.

Consumer spending is expected to remain weak, although MAPFRE Economics is expecting the arrival of 2024 to bring an improvement, driven by salaries and with a certain inclination toward services, which should in turn give a boost to the economies of southern European countries such as Spain and Italy.

The growth outlook for the Asia-Pacific region remains positive, with expected GDP growth of 5.2% this year, and 4.7% for next year. Inflation forecasts in the region for this year and next year, at 2.5% and 2.3%, respectively, are significantly lower than the levels predicted for developed economies. After a post-pandemic reopening that proved to be weaker than expected, China seems to be getting ready for its next phase, and further revitalization may be seen there in the second half of the year, thanks to a more proactive financial approach and support from a looser monetary policy. MAPFRE Economics is therefore estimating 5.3% growth in 2023 and 4.7% in 2024.

Outlooks for growth in Latin America have been revised upward, to 1.2% in 2023 and 1.4% in 2024, thanks to some improvements seen in Mexico’s economy, which is benefiting from “nearshoring,” as well as in Brazil’s, which just had its credit rating outlook upgraded. Inflation is continuing to slow in the region, and at a quicker pace than seen in developed economies. It is expected to fall to 13.3% by the end of the year, with an additional drop to 9% for the following year.

In Spain, MAPFRE Economics is expecting stronger growth compared to what has been observed over the last few months, with an overall 2.2% increase in GDP for 2023, followed by another rise of 1.9% in 2024. This is being encouraged by a moderation of energy costs, recovery of tourism, and resolution of some bottlenecks that had developed. Inflation for this year should come in at around 3.4%, below the rate seen in other surrounding countries, with 2.5% estimated for next year.

Impact on the insurance industry

For insurance companies, the growth forecast revisions present a mixed outlook in terms of their business activity and earnings. If it becomes clear that challenging financial conditions are persisting in the real economy for households, businesses, and corporations, this could translate into slower growth for insurers in their more cyclical lines of business.

High interest rates are spurring business development for life-savings and annuity products. However, in many markets, the slope reversal seen in interest rate curves has sharpened, which is presenting difficulties for medium-term and long-term management of products that offer interest rate guarantees.

Demand in the automobile line of business has increased thanks to the normalization of supply chains and pent up demand Although persistent inflation continues to affect earnings, while the outlook for health insurance remains positive. Investment portfolios have benefited from strong results during the first six months of the year, especially in equities, following the negative impact that rising interest rates had during the previous year.

Click here to view the full report.