Global Economics Intelligence executive summary, December 2022

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Forecasting institutions have retained relatively positive growth estimates for 2022, mainly based on better performance in the first half of the year; estimates for 2023 were also made less dire. In its latest Economic Outlook report (November), the OECD, for example, estimates 3.1% global GDP growth in 2022 and 2.2% in 2023. Growth estimates for surveyed advanced economies are 1.8% in the United States in 2022 and 0.5% in 2023; for the eurozone, 3.3% and 0.5%; and for the United Kingdom, 4.4% and −0.4%. The OECD estimates for emerging economies are, for China, 3.3% in 2022 and 4.6% in 2023; for India, 6.6% and 5.7%; for Brazil, 2.8% and 1.2%. The slightly improved estimates for 2023 are consonant with recent findings from McKinsey’s own economic conditions survey.

The OECD also estimates that the global inflation rate for 2022 will be 9.4%, moderating to 6.6% in 2023. The battle against inflation is being led by central banks in developed economies, down to their final policy committee meetings of the year. In December, these institutions, in the United States, the eurozone, and the United Kingdom, announced 50-basis-point hikes in policy interest rates. The tightening moves bring the US Federal Reserve’s chief policy rate of 4.25% to 4.50%, the highest range since 2007. The range of the European Central Bank (ECB) is now 2% to 2.75%, and the Bank of England (BoE) has taken its base rate to 3.5%. These are the highest levels set by the ECB and BoE in 14 years. The inflation target remains 2% for all three banks, and officials and forecasters are predicting further rate hikes will come in 2023. US Federal Reserve chair Jerome Powell suggested that his institution was willing to risk recession in order to bring inflation closer to the target.

Consumer inflation has been slowing in the United States for several months, and reached 7.1% in November. In the eurozone and the United Kingdom, the inflation rate only recently eased, to 10.1% and 10.7%, respectively. However, signs of further improvement in December are now appearing: inflation slowed to 5.6% in Spain (from 6.7%), 6.7% in France (from 7.1%), and 9.6% in Germany (from 11.3%). Consumer and producer price inflation are thus generally slowing in the developed economies but remain at levels high enough to constrain consumption (Exhibit 1).

Consumer and producer price inflation is slowing in developed economies but remains at levels high enough to constrain consumption.

Energy prices have had an outsize role in the recent inflation story and largely account for the stubbornly higher pace of inflation in Europe. These prices have recently come down significantly, however: natural gas prices in Europe (Dutch front-month futures) fell by 80% in the past four months, from a record high of €350 per megawatt hours in August to €65 on January 4, 2023. The improved picture is a result of the heavy stockpiling of supplies, including record liquefied natural gas imports and expansion in wind-generated power. The cost of power and fuel is still historically elevated, and households and businesses in the United Kingdom and the European Union, especially, are relying on government support to meet needs.

The cumulative weight of months of higher prices in energy but also food and commodities has flattened industrial activity in recent weeks. Purchasing managers’ indexes (PMIs) for manufacturing and services reveal mild contraction for November, with global readings of 48.8 and 48.1, respectively. In December, the global manufacturing PMI slowed again, to 48.6. The retreat is more evident in developed economies. In the United States, for example, a flash estimate of December’s manufacturing PMI is 46.2, further from the expansion mark of 50, suggesting a slowdown rather than a holiday season bounce (Exhibit 2).

Purchasing managers’ indexes for manufacturing mostly show contraction, especially in developed economies.

In China, the government is shifting from its “zero COVID” policy, partly to reduce economic disruption. The most recent trade data (for November) suggest early positive results. As restrictions are relaxed, health authorities have stepped up vaccination programs, especially for the elderly. The policy change has risks, as noted by Zunyou Wu, a leading infectious disease specialist for China’s CDC. At the Caijing magazine annual conference on December 17, Dr. Wu warned that between 10 and 30 percent of Chinese people could get COVID-19 this winter, with a mortality risk of between 0.09 and 0.16 percent (quoted in Global Times, December 23).

As indicated by the CPB World Trade Monitor, trade momentum slowed –1.6% in October, when China’s zero-COVID policy was still in force. November data from another trade indicator, the Container Throughput Index, show improvement, however, in a month when China relaxed some of the restrictions. The index climbed to 122.9 (120.9 in October) mainly due to a revival in throughput at Chinese ports (Exhibit 3).

The Container Throughput Index for November showed a partial recovery in trade, reaching 122.9 (120.9 in October), with a revival in Chinese ports.

Lower consumption and weaker purchasing power are some of the effects of high inflation, and retail sales growth slowed in most surveyed economies. In the United States and the eurozone, retail sales contracted −0.6% and –1.8%, respectively, in November (month over month) despite traditional holiday shopping. Global and individual consumer confidence indicators remain correspondingly low.

The Global Supply Chain Pressure Index kept by the New York Federal Reserve has shown reduced pressures in recent months; a slight uptick in pressure was recorded in November, however. Sea freight rates are higher but declining in China and India, while they are lower but climbing in Western regions.

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Recent unemployment rates were stable in the United States (3.7%) and the eurozone (6.5%), lower in Brazil (8.3%), and higher in India (8%).

Agricultural produce, livestock, and energy prices continue to ease; industrial and precious metals prices slightly increased in December. The price of Brent crude lately declined, reaching $79 on December 22. Food price inflation slowed from recent highs, but prices of some key foodstuffs are still 30% or 40% above prewar and prepandemic norms.

Inflation expectations implied in the yield spreads of US Treasuries remain in the range of 2.3% to 2.5%. Many equity indexes rebounded in November and December after experiencing losses in October; in India, stock indexes ended a two-month bullish streak in December. Overall, however, 2022 was a year of poor performance for equity markets. The MSCI All Country World Index for equities shows a 19% loss for the year, the worst retreat measured since 2008 (Exhibit 4).

Many equity markets improved in December, but global indexes reveal that 2022 overall was a year of poor market performance, with losses of nearly 20%.

In November, the US dollar depreciated against many currencies; the pound reached $1.20, and the euro $1.06. The volatility index for equity markets remains at elevated levels. Yields on long-term government bonds declined slightly in December.

McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each monthly release includes an executive summary on global critical trends and risks, as well as focused insights on the latest national and regional developments. View the full report for December 2022 here and here. Detailed visualized data for the global economy, with focused reports on selected individual economies, are also provided as PDF downloads on The reports are available for free to email subscribers and through the McKinsey Insights app. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy & Corporate Finance Practice and the McKinsey Global Institute.

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