PARIS, Jan 13 (Reuters) – The global economy will slow down this year but not collapse, said Societe Generale, which anticipates “stagflation”, a configuration far from ideal for central banks with the risk that the tightening of their monetary policy is tougher than expected.
Inflation will remain high in all advanced countries, which does not bode well for a “pivot” in the monetary strategies of central banks before 2024.
“Rather than a severe recession in winter, we are in a scenario of stagflation, characterized by high inflation and moderate growth, i.e. below potential, of the order of 1.2% in the United States. and 0.8% in the euro zone in 2023,” Michel Martinez, chief economist for Europe at Societe Generale Corporate & Investment Banking, said Thursday at a conference in Paris.
“It is not a catastrophic scenario but it is undoubtedly the worst scenario for central banks because there is no sharp deterioration in activity and inflationary pressures persist,” he added.
In the United States, inflation is expected to fall from 8.1% in 2022 to 4.1% this year while in the euro zone it is expected to fall from 8.5% to 6.5%, according to forecasts of the French bank.
With the decline in energy prices, it is underlying inflation that needs to be monitored due to the reopening of the economy, the increase in the price of goods with bottlenecks and tensions on the labor market and therefore wages, again according to Société Générale.
“In the United States, as long as we do not have a slowdown in wages, it is difficult to see real estate inflation slow down (…) To return to inflation at 2%, inflation will have to real estate is coming back at rates of around 3%. Leading indicators show that it will be gradual,” said Yvan Mamalet, senior economist for Europe.
Societe Generale expects a terminal rate of 3.75% in July for the European Central Bank, which should start lowering its rates at the end of 2024, and of 5.1% for the Federal Reserve, which should initiate a pivot on its rate at the start of 2024.
“This will allow for more marked signs of a slowdown and less dynamic wage growth at that time. From May, the Fed will be in ‘wait and see’ mode while probably maintaining a fairly tough rhetoric”. (Report Laetitia Volga, edited by Blandine Hénault)