Morgan Stanley
  • Research
  • Sep 26, 2023

2023 Global Macroeconomic Midyear Outlook: Slower Global Growth with Bright Spots in Emerging Markets

In the face of high interest rates, global GDP growth is likely to slow to 2.9% this year and stay lackluster in 2024.

Editor’s Note: This article was updated on Sept. 26, 2023, to incorporate the latest views from Morgan Stanley Research. 

More than halfway through 2023, the global economy is confronting a host of unusual occurrences. U.S. unemployment sits at its lowest point since 1968 and core inflation is higher than it was in 1983. The Federal Reserve and the European Central Bank have raised rates at their fastest pace in 40 years and 30 years respectively, and, along with the Bank of Japan, are set to trim their balance sheets at a record pace.

As central banks continue their campaigns to slow inflation, both the U.S. and Europe are likely to avoid recessions, but Morgan Stanley Research economists believe global GDP growth will slow to 2.9% in 2023. That is down from 3.4% in 2022, albeit better than the 2.2% growth economists predicted late last year.

The year ahead does have some bright spots. “Overall, we continue to forecast outperformance in emerging markets, particularly in Asia,” says Seth Carpenter, Morgan Stanley’s Global Chief Economist.

Although China’s growth has been slower than economists originally expected, its 4.7% forecasted GDP growth should continue to support regional strength on a cyclical basis. In the medium term, trends such as digitalization continue to support India’s economy, which is slated to grow 6.6% this year.  

Here are some of the biggest themes expected to shape regional economies and a look at where investors might find opportunity in the second half of this year and beyond. 

Morgan Stanley Forecasts Versus Consensus

2022 2023E 2024E
GDP (%Y) Morgan Stanley Consensus Morgan Stanley Consensus
Global 3.4 2.9 - 2.7 -
US 2.1 2.1 2.0 1.2 0.9
Euro Area 3.4 0.4 0.6 0.7 0.9
Japan 1.1 2.2 1.8 1.1 1.0
UK 4.1 0.4 0.4 0.6 0.6
China 3.0 4.7 5.1 4.2 4.5
India 6.7 6.6 7.0 6.4 6.1
Brazil 2.9 3.0 2.5 1.8 1.5
Source: Bloomberg, Haver Analytics, Morgan Stanley Research forecasts; Note: Aggregates are PPP-weighted. Cons = consensus, which is built off leading Wall Street bank forecasts from Bloomberg except for the US, Brazil, and Peru, where alternative consensus sources are used with more local representation. India consensus values refer to FY.

A Soft Landing in the U.S.

For the past year, Morgan Stanley economists have maintained that the U.S. economy is heading for a moderate economic slowdown rather than a full-blown recession.

However, with both investment spending and consumer spending holding up better than expected, the outlook appears even more optimistic. Morgan Stanley Research has updated its midyear outlook, anticipating U.S. GDP growth of 2.1% and 1.2% for 2023 and 2024 respectively, compared to its previous estimates of 1.2% and 0.8%.

“We continue to look for a soft landing this year, but that depends on how much tighter credit conditions for households and businesses weigh on economic activity,” says Ellen Zentner, Chief U.S. Economist. 

European Consumption Should Pick Up

Inflation in the euro area has been on its way down after peaking at an annualized rate of 10.6% in October 2022, with prices for energy, goods and food receding. “We expect headline inflation to be 5.7% for in 2023 and 2.6%in 2024,” says Chief Europe Economist Jens Eisenschmidt. “However, we think that it will take time to get back to the ECB’s target of 2% and we might not be there by the end of 2024.”

Another relative positive in Europe is that the employment should stay stable while wages, which haven’t kept pace with inflation, are accelerating and should continue to do so. The combination of declining inflation and rising wages means workers should start to see their purchasing power increase later this year and into 2024.

“This provides more a positive backdrop for private consumption, which accounts for around 50% of GDP in the euro area,” Eisenschmidt notes. “That said, weakness in exports and investment may get in the way of more meaningful GDP growth as the impact of tighter monetary policy increasingly affects the euro area economy.” The upshot: an estimated 0.4% GDP growth in 2023 and 0.7% growth in 2024.

China, Reopening and Recovering

The strength and significance of China’s recovery has been closely scrutinized and debated. Morgan Stanley’s economists initially expected a positive story for the world’s second-largest economy, with growth of 5.7% in 2023 and 4.9% in 2024. However, a muted policy approach, coupled with weaker-than-expected demand and attempts to reduce debt in the property sector, have been a drag on growth.

“We initially expected a combination of continued pent-up household demand and increasing monetary and fiscal policy to generate a cyclical recovery in the second half of 2023,” says Chief China Economist Robin Xing. “Ongoing and upcoming policy easing should help to boost overall demand. However, this would still drive only a modest recovery.” Consequently, Morgan Stanley lowered its expectations for China GDP growth, to 4.7% for 2023 and 4.2% for 2024.

Early Days for India Decade

Morgan Stanley has been following India’s transformation for years, noting that three megatrends—global offshoring, digitalization and energy transition—have put the country on a path to be the world’s third-largest economy by 2027.

Those secular tailwinds, which support strong domestic demand, are central to India’s forecasted growth of 6.6% in 2023 and 6.4% in 2024. “At the same time, cyclically stronger balance sheets, improving macro stability reducing pressure on policymakers to tighten monetary policy and structural policy reforms are the key drivers for a sustainable recovery,” says Chief India Economist Upasana Chachra.

Japan's Growth Revival

At first glance, 2.2% and 1.1% GDP growth for 2023 and 2024 respectively may not seem noteworthy. Yet, for Japan, this outlook speaks to strong nominal growth.

“This would be a momentous change for Japan, where nominal growth has been basically in a flat range for a long period,” says Chief Japan Economist Takeshi Yamaguchi. “It implies simultaneous growth for employee compensation and corporate earnings, a large increase in tax revenue and potentially positive effects on asset prices.”

Yamaguchi expects continued strength in private consumption and corporate spending. “Exports are exposed to the overseas economic slowdown ahead, but we expect the yen to stay at relatively weak levels, which differs from past periods, to support the earnings of exporters,” he adds. 


For more Morgan Stanley Research insights and analysis on the Global Macro Economy, ask your Morgan Stanley representative or Financial Advisor for the full report, " The Sun Rises in the East" (June 4, 2023). Morgan Stanley Research clients can access the report directly here. Plus more Ideas from Morgan Stanley’s thought leaders.