Global Economics Intelligence executive summary, May 2023

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Consumers are generally feeling more positive (Exhibit 1) as inflation stabilizes across economies, though spending growth in most countries has declined. However, inflation remains stubbornly persistent in some countries, such as the United Kingdom; by contrast, it is ameliorating in Brazil and India and is now at 0.1% in China, prompting deflation worries. In general, headline inflation among developed economies has eased, but core inflation remains high. Eurozone inflation was marginally up at 7.0% in April (6.9% in March), driven mainly by food price inflation (13.5% in April), while UK inflation declined by less than expected but dropped into single figures for the first time since summer 2022.

Consumers remain cautious even as their confidence has improved; however, spending growth in most countries has decelerated or declined.

Central banks are aiming to sustain pressure on inflation by maintaining interest rate levels or raising them (Exhibit 2). The Federal Reserve raised the interest rate paid on reserve balances to 5.2%. Federal Reserve officials decided to maintain the target range for the federal funds rate at 5.0 to 5.25%. Given the strong job market, plentiful job openings, and stable expectations, Federal Open Market Committee (FOMC) officials are more optimistic about achieving a soft landing. The Bank of England raised its policy rate by 50 basis points to 4.5% on May 11 and is anticipated to raise rates above 5.0% before the end of 2023. In a similar spirit, the European Central Bank (ECB) also increased its key interest rate to 3.25%, a hike of 25 basis points. However, opposition to higher interest rates from businesses and consumers is gaining momentum in many countries. The Brazil central bank’s decision to maintain the key Selic rate steady at 13.75% (currently one of the highest real interest rates globally) has been questioned by the Brazilian government.

Central banks are committed to fighting consumer inflation: the US Federal Reserve and European Central Bank increased interest rates in May.

According to the OECD’s composite leading indicator, the economic situation in the next three months will worsen across all countries except the United Kingdom, where recovery continues. Flash estimates for eurozone GDP growth show that the first quarter of 2023 was barely positive (0.1%) compared with the previous quarter but up by 1.3% on the same period in the previous year. The widely anticipated recession has not materialized so far, although there is significant year-on-year growth disparity, ranging from +6.4% (Ireland) to –3.7% (Lithuania) (Exhibit 3).

While eurozone GDP growth stayed in positive territory, huge heterogeneity exists across member states, and leading indicators remained negative.

The global services sector recorded strong growth in March, while the manufacturing sector contracted further. Manufacturing faces headwinds from soft global demand: new orders, stocks of purchases, and delivery times point toward contraction. Across countries, the story looks very similar: services remain more robust than manufacturing. In the United States, the purchasing managers’ index (PMI) for manufacturing increased to 49.3 in March (47.3 in February); the services PMI rose to 52.6 (70.4 in May 2021). In Europe, the manufacturing PMI reached 53.3 in the flash estimate for May (54.1 in April), a three-month low. The services PMI broke into expansion territory in January (50.8) and leveled off in May (55.9). In India, the April PMIs for both manufacturing and services remained solidly in expansion territory at 57.2 (56.4 in March) and at 62 (57.8 in March) respectively. Brazil’s manufacturing PMI extended its downturn, dropping to 44.3 in April from 47.0 in March; the services PMI expanded to 54.5 in April from 51.8 in March, signaling a second successive upturn.

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A tight labor market continues in many areas, with declining unemployment rates in the United States, China, the eurozone, and Russia. The United States has reported that its labor force was up by approximately 1,161,000 in April from March 2020, with the number of women returning to work boosting female labor force participation to pre-pandemic levels.

Stock markets recorded solid growth in April; most of them extended gains through May. On the US equities markets in April, both the S&P 500 and the Dow Jones were up—by 1.5% and 2.6%, respectively. European equities recovered from the Credit Suisse takeover, with the Eurostoxx 600 index standing at 5.0% below its January 2022 peak.

In March, world trade volumes increased 1.5% on a monthly basis (–0.8% in February revised)—mainly explained by increases in emerging economies. In March, the Container Throughput Index fell slightly, to 118.1 points, compared with the previous month (118.6 points revised). China’s ports were busier, and exports increased for China and Brazil. That said, China cross-border trade expanded more slowly at 1.1% in April (7.4% in March). Exports growth decelerated to 8.5% year on year in April (14.8% in March), while imports slowed by –7.9% (–1.4% in March). In India, April merchandise exports recorded a 10% decline over March’s total of $38.38 billion.

Current tremors in the financial system may signal a shift in how the world borrows, lends, and accrues value, according to a new report from the McKinsey Global Institute. The future of wealth and growth hangs in the balance finds that asset price inflation over the past two decades has created about $160 trillion in “paper wealth.” However, economic growth was sluggish, inequality rose, and every $1.00 in investment generated $1.90 in debt. The report sets out four plausible economic scenarios to 2030: three are far from ideal; only one scenario is positive, combining strong growth in income, wealth, and balance sheet health, if economies can accelerate productivity so that growth catches up with the balance sheet.

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. 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 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 and Corporate Finance Practice and the McKinsey Global Institute.

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