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Pasaulio ekonomikos apžvalga „Nordic Outlook“ (anglų kalba)

03.05.2023 - 08:03

New playing field as both inflation and growth fall

There are more and more signs that high inflation is finally coming down. Energy, commodity, transport and input prices have fallen. This has not led to broad-based declines in consumer prices, but we are at least seeing a slowdown in the pace of price increases. While this is welcome news, there is every reason for continued caution. Inflation is still very high, and underlying inflation in particular seems unwilling to give up without a lengthy fight. This, in turn, means that despite signs of waning inflationary pressures, central banks will keep hiking key interest rates at one or more meetings before rates peak.

Interest rates have exceeded the neutral level and are now having a tightening effect on the economy. Together with falling real wages and lower consumption, they are thus contributing to the slowdown in economic activity indicated by the forecasts cited in this report. The depth and duration of the coming economic downturn will not be easy to determine. For a long time, there has been an unusually wide gap between soft indicators − such as what companies and individuals believe about economic conditions − and hard data such as unemployment and GDP growth. The soft indicators have pointed to a substantial slowdown and an imminent recession, while hard data have continued to surprise on the upside. The strength of the real economy has contributed to continued high inflationary pressures but has also made it easier for central banks to hike their key rates quickly, without worrying about rising unemployment and rapidly declining growth.

But recently, signs of a slowdown have become more evident and the central banks’ balancing act between inflation and recession risks has become more difficult.

This May 2023 issue of Nordic Outlook includes in-depth theme articles that address the following issues: