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ING global economic outlook 2023 December 2022 At a glance: The world right now Carsten Brzeski Global Head of Macro and Chief Economist, Eurozone, Germany, Austria [email protected] Rob Carnell Regional Head of Research, Asia-Pacific [email protected] Frantisek Taborsky EMEA FX & FI Strategist [email protected] Padhraic Garvey Head of Global Debt and Rates Strategy/ Regional Head of Research, Americas [email protected] James Knightley Chief International Economist, Americas The World Reimagined globes in London, UK - 20 Nov 2022 [email protected] Iris Pang 1 US: Markets doubt the Fed’s intent Chief Economist, Greater China [email protected] The economy is experiencing a strong second half of 2022. Jobs are being created in significant number, wages continue to rise and household keep spending as the Fed James Smith signals a step down to 50bp incremental rate hikes, but with a higher ultimate rate than Economist, Developed Markets they indicated was likely back in September. Officials suggest they may not cut rates [email protected] Chris Turner until 2024 given their concern about stickiness in key service sector components of Global Head of Markets and Regional inflation, but their forward guidance needs to be taken with huge handfuls of salt given Head of Research, UK & CEE their recent track record. The “hawkish” rhetoric is likely the result of concern that the [email protected] recent steep falls in Treasury yields and the dollar, coupled with a narrowing of credit spreads is loosening financial condition – the exact opposite of what the Fed wants to see as it battles to get inflation lower. Nonetheless, the softer core inflation prints seen in October, combined with bad housing market data and weaker business confidence has led the market to anticipate rate cuts from second half of 2023 – in line with our long-held view. 2 Eurozone: Lower energy prices have temporarily stopped the downturn With lower natural gas prices on the back of the unusual warm autumn weather the downturn in sentiment has been temporarily halted, though most indicators are still weak. With retail sales falling sharply in October a recession over the winter quarters still looks very likely, albeit perhaps not as deep as we previously pencilled in. Thereafter, growth will be subdued at best, as higher interest rates will start to bite, energy prices are likely to remain at elevated levels, while budgetary stimulus is bound to peter out in the course of 2023. Headline inflation fell back in November to a still high 10%, while underlying inflation remains stuck at 5%. The ECB is therefore likely to lift the deposit rate to 2% in December, considered by some members of the Governing Council as the neutral rate. The first quarter might see another 50 bp further tightening, as well as the start of gradual reduction of the balance sheet, though at a very slow pace in the beginning. 3 UK: Calmer markets and delayed fiscal pain not enough to stop recession Calmer financial markets and some fresh tax rises allowed the Chancellor to put off some of the painful spending cuts until after the next election in 2024/25 in his Autumn Statement. Nevertheless, energy support will become considerably less generous for

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