MAPFRE Economics forecasts global economic growth of 2.7% in 2023

MAPFRE Economics, the MAPFRE Economic Research service, believes that the world economy will grow at a slightly quicker pace in 2022 than what was forecasted in July: its forecast was revised upwards from 3.0% to 3.2%. However, a bigger blow is expected in 2023, with a smaller rebound of 2.7%. This is stated in the report Economic and Industry Outlook: Fourth-Quarter Perspectives. Data suggest that, starting in the last quarter of this year, the economy will begin to cool as a result of high inflation, energy prices, monetary policy tightening, and the war in Ukraine. Moreover, the chances have increased of a worst-case scenario coming to pass, namely global economic growth falling to 2% in 2023.

The blow will be greater in Europe than in the United States. Estimates by MAPFRE Economics experts suggest that the Eurozone will see three consecutive quarters of contraction, which means that GDP will remain at about zero the next year. In contrast, the U.S. is expected to start 2023 in recession and recover by spring, ending next year with modest 0.2% growth. These figures, however, could worsen if inflation continues to worsen and financial conditions continue to tighten, in which case a contraction of -0.5% is forecast for the US and -0.3% for the eurozone.

At least a third of the world’s economies will enter technical recession next year, including Germany and the United Kingdom, whose GDP will fall to -0.4%. In the case of Spain, a notable slowdown is expected, with a drop of more than one percentage point with respect to the July forecast, when an increase of 2.4% was estimated. Despite the downward revision, the country will be spared a recession and will end 2023 with 1% growth. Analysts have also revised the forecast for 2022, although in this case upwards: three tenths higher, to 4.4% GDP for this year, owing to a better performance in the second quarter than originally forecast by the Spanish National Statistics Institute.

Despite the fact that Spain has avoided recession, the report warns of the possibility that growth in 2023 could fall further, to 0.6%, if high energy costs persist and gradually impact services. If so, “it would be difficult to avoid knock-on effects.” They also believe that interest rate hikes will have an impact on credit markets, with higher costs, increased defaults, and possible credit contraction.

For the time being, employment levels are holding up; according to official figures, almost 30,000 jobs have been created each month in seasonally adjusted terms. But the tightening of financial conditions and the decline in private consumption may result in a rebound in unemployment.

Going against the current of other economies, China is expected to have lower growth in 2022 than next year. Estimates suggest that this year’s GDP will be 3.2% due to the impact of the zero-Covid policy; and that GDP will grow by 5.0% in 2023. In any case, tensions with the United States, the dispute over Taiwan’s independence, and financial vulnerabilities are feeding high levels of uncertainty in the international arena.

Another factor feeding high uncertainty is debt. The report states that, “in a context in which successive interest rate increases by the major economies to combat inflation are taking hold, debt sustainability is beginning to deteriorate rapidly.” The fear is greatest among emerging countries, although caution is also called for among large economies.

Impact on the insurance sector

As usual, the report includes an analysis of how the forecasts affect the performance of the insurance sector. Analysts acknowledge that the tightening of monetary policy and a possible recession in key economies will negatively affect insurance markets, particularly in the eurozone. Up to now, the sector had recorded an increase in premium volume, but this is proving insufficient in the face of rising inflation, which in turn affects profitability. This is the case in Spain, where economic tailwinds had facilitated significant growth in premiums (5.7% and 5.6% in the Non-Life and Life businesses respectively, in year-on-year terms up to September), but without offsetting the price increase.

The adjustment in the financial markets is also having an adverse impact on the valuation of sovereign bonds and risk assets. On the positive side, the scenario for the Life savings insurance business has generally improved, and the automotive sector is beginning to overcome the supply chain and semiconductor issues that had been weighing heavily on vehicle registrations, although financing conditions for the purchase of new vehicles have tightened considerably.

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