The global economy likely faces a decade of sluggish growth, according to Daniel Lacalle, author and chief economist at Tressis Gestion.
Economies around the world have been grappling with a multitude of shocks — from Russia’s invasion of Ukraine to China’s persistent zero-Covid measures — that have sent inflation soaring and weakened activity.
The International Monetary Fund now projects that global GDP growth will slow from 6% in 2021 to 3.2% in 2022 and 2.7% in 2023. The Fund characterized this as “the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the Covid-19 pandemic.”
Meanwhile, global inflation is forecast to rise from 4.7% in 2021 to 8.8% this year before declining to 6.5% in 2023 and to 4.1% by 2024, remaining above the target levels for many major central banks.
China offered some solace to economists and market participants on Tuesday, when it officially announced the end of quarantine requirements for inbound travelers on Jan. 8 — symbolizing an end to the zero-Covid policy that it has held for nearly three years.
Speaking to CNBC’s “Squawk Box Europe” on Tuesday, Lacalle said the potential for a full reopening of the Chinese economy was “the biggest positive” that markets could expect for 2023.
A screen displays the Fed rate announcement as a trader works on the floor of the New York Stock Exchange (NYSE), November 2, 2022.
Brendan McDermid | Reuters
“We have been looking at a very bleak picture for the Chinese economy, which is essential not just for the growth of the rest of the world but particularly for Latin America and also for Africa,” he said.
“The reopening of the Chinese economy is certainly going to give a significant boost to growth all over the world, but also — and I think it is a very important factor — German exporters, French exporters have felt the pinch of the lockdown and the weakening of the profit environment in China, and this is certainly going to help a lot.”
However, he suggested that this boost will not come close to bringing growth levels close to where they were in the years before the pandemic for a good while to come.
“I think that we are probably going to move into a decade of very, very poor growth in which developed economies are going to find themselves lucky with 1% growth per annum, if they are able to achieve it, and what is more unfortunate than everything else is with elevated levels of inflation,” Lacalle said.
“I think that we are living the backlash of massive stimulus packages that were implemented in 2020 and 2021. That has not delivered the kind of potential growth that many economists expected.”
Yet despite the bleak outlook, he emphasized that there is not a crisis on the horizon.
“I think that markets are starting to price that environment in which the situation globally is not of a buoyant level of growth and economic development, but [is] one that avoids a financial crisis, and if that happens, it is certainly positive,” he concluded.