World economy and global trade: projections

The world economy started this year on a stronger footing and is expected to grow moderately over the ECB’s projection horizon, with some rebound in 2025.

In the first quarter of 2023, the global economy continued to be characterized by the major challenges of 2022, such as the ongoing Covid-19 pandemic, the war in Ukraine, rising inflation and interest rate hikes.

These challenges have had a significant impact on economic growth, trade and investment.

Global GDP growth (excluding the euro area) surprised on the upside in the first quarter of 2023, with better-than-expected growth in both China, related to an earlier and stronger-than-expected recovery following the lifting of pandemic restrictions, and in the United States, against the backdrop of a resilient labor market.

The fallout from the U.S. banking sector problems in early March led to a brief period of acute stress in global financial markets.

Since then, however, most asset classes have recovered their losses despite lingering uncertainty. The global economy (excluding the eurozone) is forecast to grow by 3.1% this year and next.

The ECB forecasts growth to rise to 3.3% by 2025.

World economy

Despite the positive momentum of economic activity, global trade remains weak, as the composition of global demand is becoming less trade-intensive, but over the medium term it should evolve more in line with real GDP growth.

The current low trade intensity of growth reflects the interaction of several factors, such as the post-pandemic shift in consumption patterns towards services and away from goods, and lower investment due to rising interest rates.

As a result, the ECB forecasts global trade to grow 1.3% in 2023, a pace notably below its long-term average and also below global growth.

Given that the composition of consumption patterns in advanced economies is expected to normalize gradually over the projection horizon, with investment picking up, world trade should increase at rates only slightly above those of global growth in 2024 and 2025.

Euro area foreign demand will follow a similar trajectory, growing 0.5% this year and rising to 3.1% in 2024 and 2025.

The projections for world trade and euro area foreign demand have been revised downward for this year-largely due to substantial negative carryover effects from weaker-than-previously-estimated trade performance at the end of the year-and remain broadly unchanged for subsequent years.