Growing differences in growth – Asia is pulling away

Stefan Karlsson, chief analyst at EKN, presents his latest global outlook for 2023. Sweden’s exports are going strong, global inflation is finally on the way down – and export companies should be aware that Asia will increasingly become the world’s engine of growth.

What is the state of the world economy really like?

  • According to the IMF’s latest forecast, the economy will bottom out this year and then turn upwards. However, the forecast shows that global economic growth will be weaker this year and next year than it was in 2022. However, it depends on where in the world you look – the difference in growth rate between Asia and other regions increases during the year. This year, for example, the euro area is expected to grow by 0.8 percent while Asia grows by 5.3 percent. And, which is important for Swedish export companies to think about, Asia is no longer just a region to trade from. 35 percent of all world imports go to countries in the region.

And what does inflation look like around the world?

  • The historically high inflation, especially in the OECD’s high-income countries, is considered to have peaked and is now gradually falling. In the United States, it peaked in June 2022 and has fallen every month since. The annual rate was 3.9 percent in March, while the key interest rate is five percent. The European and Swedish central banks have been later in the interest rate hike cycle. In May, their key interest rates were 3.75 percent and 3.5 percent, respectively. For all three central banks, interest rate increases are expected to end during the summer, although it is not unlikely that another increase could follow in the autumn.

What does this mean for Swedish exports?

  • Swedish exports are going well! Swedish goods exports developed strongly last year, helped by a weak krona. The increase in value was a total of 23 percent, but in the increasingly important Asia the increase amounted to a more modest 16 percent. During the first two months of 2023, merchandise exports continued to increase by 17 percent. Exports to EU countries remain strong with an increase of 20 percent, while exports to Asia are again increasing less than to other regions.

Finally, can we make some cuts to how things look in key export markets?

  1. Latin America
  • Swedish exports to Latin America increased by a whopping 47 percent last year. In 2023, however, growth in the region is expected to amount to a weak 1.6 percent, which makes the region the weakest growing with the exception of Eastern Europe, where the conflict in Ukraine affects growth. Many countries, including Brazil and Chile, are battling inflation, falling export earnings, weak production data and rising unemployment.
  1. Asia
  • In Asia, with China and India at the forefront, strong growth will continue in the coming years. The fact that China’s economic cycle is out of phase with the rest of the world is due to the dismantling of the strict covid strategy at the end of December 2022. After low GDP growth in 2022, three percent, the economy is now at the beginning of a recovery phase. In India and Southeast Asia, growth remains robust – 5.9 percent in India and 4.5 percent in Southeast Asia. In general, Asia has not been hit as hard by inflation as Europe and North America, and even here inflation has probably already passed its peak.
  1. Europe and North America
    The euro area, the rest of Europe and the US will be in a continued high inflation environment in 2023 and this contributes to subdued economic activity. With growth figures of between 0.8 and 1.6 percent for the year, the ”West” is growing the slowest in the world this year, along with Latin America. In the next year, US growth drops further to 1.1 percent. Eurozone growth is increasing slightly, but even in 2024, the OECD countries thus exhibit the lowest growth in the world.

Are you thinking about exporting?

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