The Business Cycle
The global economy is likely to grow in the vicinity of 3% in 2023, downfrom 3.4% in 2022, and 6.3% in
2021. Despite the recent slowdown, this growth rate aligns with the historical average since the 1970s.According to WTO, growth in world merchandise trade is expected to decelerate to 1.7% this year, from
2.7% in 2022.Trade volumes nevertheless set a new record in 2022, following the contraction seen in2020 and are now exceeding 2019 levels (Chart 1, Chart 2).
The current business cycle is characterized by tight labor markets globally, especially in advancedeconomies. In April 2023, the US unemployment rate stood at 3.4%, which is historically low compared tothe average rate of 5.7% from 1948 to 2023.It reached an all-time low in May 1953 at 2.5%. Hence,itremains remarkablylow amid a slowing business cycle when it would otherwise have been expected toclimb. In the OECD countries, the average unemployment rate was 4.8% in March 2023, the third month atthis record low since 2001 (Chart 3). In the European Union, the unemployment rate was 6.0% in March
2023, also a historic low,and that of the euro area fell to 6.5% in the same month. While we would expectunemployment rates to rise again in the latter part of this year, it is difficult to anticipate a recession at thecurrent junction given that record numbers of workers are earning a regular income.
Inflation has risen dramatically since 2021,particularly due to Russia’s invasion of Ukraine in 2022,interrupting the general disinflation trend that had been in place since the 1980s.Global inflation rose to
8.7% in 2022 and is likely to pull back to 7% in 2023 (Chart 4). Despite some significant monetary policytightening, inflation remains somewhat stubborn, impacting the real interest rates and affecting debtholders. At its latest meeting in May, the US Federal Reserve lifted its policy rate to 5.0-5.25%, the 10*hike injust over a year,but hinted at a less aggressive stance going forward Consumer price inflationstood at 5.5% year-on-year in April, meaning that the real rate of interest is still just negative, as it mostlyhas been since the Global Financial Crisis 2008-2009. Nevertheless, the price of moneyis going up(although it is still low), and this will impact all debt holders.
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