Making Dollars & Sense of the Global Economy in 2023

by | Dec 21, 2022 | Financial Featured

Forecasting economic performance for the upcoming year involves analyzing a range of economic indicators to assess the potential performance of the global economy. First, let’s move on to the obvious question – What is GDP?

Gross Domestic Product (GDP) is a crucial indicator of economic performance, as it measures the total value of goods & services produced in an economy over a given period. GDP can be used to gauge an economy’s overall health and compare the economic performance of different countries.

Other significant economic indicators that experts use to forecast economic performance include:

  • Inflation: Inflation is a measure of price levels, and it refers to a sustained increase over time for goods and services in an economy. It is typically measured as the % change in a price index, such as the Consumer Price Index (CPI). Inflation can affect economic performance by reducing the real purchasing power of money and affecting the cost of borrowing and the level of consumer demand.
  • Interest rates: Interest rates refer to the cost of borrowing money and can be influenced by various factors, including the level of inflation and the strength of an economy. Higher interest rates tend to make it much more expensive for businesses and consumers to borrow money, impacting economic activity and growth.
  • Retail sales: Retail sales measure the total value of goods and services sold by retailers over a given period and can be used as an indicator of consumer demand and economic activity. A decline in retail sales can signal a slowing economy, while an increase can indicate economic growth.
  • Housing market: The housing market, including home sales and prices, can be a helpful indicator of economic activity, as the housing market is often closely tied to consumer confidence and spending patterns.
  • Real purchasing power of money: The real purchasing power of money refers to the amount of goods and services that people can purchase with a given amount of money after accounting for the effects of inflation. The real purchasing power of money can be affected by changes in prices, as well as by changes in the value of money itself.
  • Interrelatedness of economies: The prosperity of one nation can depend upon the prosperity of other nations, as economies are increasingly interconnected through trade, investment, and financial flows. Changes in the economic performance of one country can have knock-on effects on the economies of other countries, particularly in the case of major trading partners or financial centers.
  • Consumer confidence: Consumer confidence, as measured by surveys of consumer attitudes towards economic conditions and the future outlook, can be a useful indicator of consumer spending patterns and the overall health of an economy.
  • Trade: Trade data, including imports and exports, can provide insight into the strength of an economy’s domestic demand and its ability to compete in global markets.
  • Retail sales: Retail sales measure the total value of goods and services sold by retailers over a given period and can be used as an indicator of consumer demand and economic activity.
  • Employment and unemployment: The employment and unemployment rate are important indicators of the health of an economy, as they reflect the number of people working and the number who are looking for work.

Global Gross Domestic Product (GDP) Projections: Art or Science?

Source: Statista Global GDP at Current Prices 1985-2027

To forecast economic performance for the upcoming year, experts will typically analyze a range of economic indicators and consider their interrelationships, as well as other factors such as government policies, demographic trends, and technological developments.

By examining these indicators and trends, experts can better understand the global economy’s potential performance in the coming year and make informed predictions about economic growth, inflation, and other key economic indicators. These are just a few examples of the economic indicators that economists use to forecast economic performance. Many other indicators may be used, depending on the specific context and focus of the analysis.

Unexpected events sometimes referred to as “Black Swans“, can significantly impact global economic prospects. These events can include natural disasters, technological disruptions, political crises, and other unforeseen developments that can disrupt economic activity and cause significant shifts in the economic landscape.

One example of an unexpected event that significantly impacted global economic prospects was the Global Financial Crisis of 2009. This crisis, triggered by the collapse of the housing market in the United States and the resulting subprime mortgage crisis, had far-reaching ramifications for the global economy, leading to a sharp contraction in economic activity and a long recovery period.

More recently, the COVID-19 pandemic has also had a major impact on global economic prospects. The pandemic, which began in late 2019 and spread rapidly worldwide, caused widespread economic disruption as governments implemented lockdowns and other measures to slow the spread of the virus.

This led to a sharp contraction in economic activity, particularly in the tourism, hospitality, and retail sectors. However, the global economy has since seen a rapid recovery, with many economies returning to growth as the pandemic has receded and economic activity has resumed.

Share This