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Global Economic Outlook: Expect the Unexpected


October 25, 2023

The Northern Trust Economics team shares its outlook for major markets in the months ahead.

Forecasting economic outcomes is a challenging exercise, even under steady conditions.  Geopolitical events have only added to the complexity facing economies worldwide.

The situation in Israel is rapidly unfolding, and remains much more of a humanitarian crisis than an economic one.  The involved nations are fairly insular, and the conflict has not yet altered our forecasts.  The economic risk vector will be through oil prices; should the conflict spread to other oil-exporting nations, the global economy could experience another round of energy-led inflation, raising recession risks.

The shock comes just as many economies are entering a delicate interval.  Slower consumption is adding to recession risks, inflation is on an unevenly downward path, and labor markets are still tight.  Higher interest rates are supporting central banks in their objective of economic cooling.  Risks were skewed to the downside even before the Middle East conflict, and uncertainty is only higher now.

Here are our up-to-date perspectives on how major economies are poised to perform during this year and next.

United States

  • Data in recent months has defied expectations of a looming recession.  Employment jumped by 336,000 in September, while job openings rebounded and layoffs held low.  Buoyant activity has raised expectations of a strong third quarter reading of gross domestic product (GDP).  Several Federal Reserve speakers have alluded to an end to rate hikes.  Risks now cut both ways: while recession is possible, the economy could also enter a reflationary boom, requiring even more central bank policy response.
  • The outlook assumes near-term uncertainty will pass.  A continuing budget resolution merely deferred the risk of a federal government shutdown to mid-November, and a leadership void in the House of Representatives has brought fiscal work to a halt.  Strikes are limiting wages of a subset of workers, and the resumption of student loan payments will require some rebalancing of household budgets.  These frictions impair our growth forecast in the near term but should prove to be surmountable.


  • Eurozone economies have fallen into a malaise, with Germany and Italy posting sluggish results that could drag the overall region into a contraction for the third quarter.  A wide range of surveys (ZEW, Sentix, the Economic Sentiemnt Indicator and Purchasing Managers’ Indexes) are off their recent lows but paint a picture of economies in contractionary territory.
  • Inflation’s descent is encouraging, with year over year core inflation falling from 5.3% in August to 4.5% in September; declines are evident across both goods and services.  At its September meeting, the European Central Bank (ECB) increased its policy rates but gave a dovish statement, expecting inflation to reach its 2% target at current interest rates.  We concur: absent a return to higher inflation, the ECB has likely made its last hike.

United Kingdom

  • Recent revisions to U.K. economic data show a stronger pandemic recovery than initially estimated; the nation’s 2019 level of output was attained in the fourth quarter of 2021.  Since that time, though, the economy has plateaued, and we see little reason to expect a break from the flat trend.  The estimate of monthly GDP has been volatile, with monthly gains narrowly outpacing monthly losses.  Unemployment is gradually rising, cutting into U.K. residents’ ability to endure an interval of stagnation and uncertainty.
  • Headline inflation held steady at 6.7% year over year in September as easing food costs offset higher energy prices.  Core inflation slipped one-tenth to 6.1%: goods prices showed relief, but services inflation shifted up.  Private sector wage growth is slowing, offering hope for improvement in services inflation ahead.  The recent Bank of England policy decision to hold rates steady was contentious; slow improvement from such high levels of inflation will likely force another hike in the months to come.


  • After a surprisingly strong recovery in the year to date, Japan will likely revert to its slower norm of growth, but not slip into recession.  The Japanese economy is feeling strains from external weakness: the falling yen is supporting export competitiveness but cannot offset lower external demand.  Measures of inflation have held steady in recent months, but may improve as a slower global economy leads to lower import prices.
  • The Bank of Japan (BoJ) is maintaining its cautious posture, holding its overnight rate at -0.1% while allowing its wider range of yield curve control (YCC) policies to take effect.  The 10-year Japanese Government Bond yield has exceeded 0.8%, its highest level in a decade.  Tempering inflation likely sets the stage for a further loosening or suspension of YCC, followed by an end to the negative rate regime.


  • Since our in-depth review of China last month, the economy posted strong third quarter growth, but challenges persist.  The nation’s property market correction continues to weigh on the economy, with Country Garden again approaching a debt default.  Tense geopolitics and supply chain diversification are limiting China’s prospects for foreign investment.
  • Policy responses to economic challenges have shown a preference for smaller, delayed interventions, with some tolerance for credit stress.  Falling holdings of U.S. Treasuries suggest the administration is attempting to shore up the declining value of the yuan. 


Meet Our Team

Carl R. Tannenbaum

Carl R. Tannenbaum

Executive Vice President and Chief Economist
Ryan James Boyle

Ryan James Boyle

Chief U.S. Economist
Vaibhav Tandon

Vaibhav Tandon

Chief International Economist


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