Skip to content
December 20, 2022

The Northern Trust Economics team shares its outlook for key markets in the month ahead.

As the year draws to a close, the global economy is entering a new phase. Growth, inflation and interest rate increases are all slowing in major economies. Higher borrowing costs have already thrown housing markets into recession, and they will weigh more heavily on consumption and investments. 

We expect the U.S. to chug along sluggishly; European nations will remain plagued by the same challenges that hindered their economies in 2022. With western expansions waning and China unlikely to fill that gap, the drivers of global growth will remain weak in 2023. In our view, the threat of adverse surprises tilts growth risks to the downside.

Inflation data will improve as commodity costs ease and supply chains heal. Yet central banks will continue to hike into 2023 and will keep rates elevated despite weaker activity. They are prioritizing the fight to bring inflation closer to pre-pandemic levels.

Here are perspectives on how major economies are poised to perform in 2023.

United States

  • Signs of cooling inflation are becoming more apparent in the U.S. The year over year increase in the consumer price index decelerated further to 7.1% in November, encouragingly led by a softer core component. Shelter continued to add to overall price increases, and will take several months to reflect the cooling housing market. The journey towards lower inflation has begun, but the 2% destination is still distant.
  • Recession worries persist, but it is not our base case for the United States. High-frequency readings of consumer spending and business investment are still showing growth. Still-strong labor market conditions have kept the window to a soft landing open. Sluggish growth will bring the Fed’s tightening cycle to a halt, but will not lead to a reversal in monetary policy until inflation is well under control.


  • The eurozone economy has held up well in the face of unending adversities, but cracks are starting to appear. Sentiment surveys have hit new low points, and the hard data is headed in the same direction. German retail sales and exports have declined, as have French consumer spending and industrial output. Gas prices are rising again, and its stocks are draining. The bloc will likely avoid energy rationing this winter, but the cost of home heating will take a toll on consumption. A recession is now underway in the eurozone; we expect it will be short and shallow.
  • Lower energy costs imply a decline in the inflation rate in the coming months, but the descent will be gradual. A hawkish European Central Bank will continue to tighten aggressively well into 2023. Fiscal policy will remain supportive as the euro area’s spending rules remain suspended until the end of next year. The size and type of stimulus measures will vary across member states.

United Kingdom

  • The U.K. economy is ending the year on weak footing; the economy contracted in the third quarter, and the worst may be ahead. British households are increasingly struggling under higher costs of living, even though much of the impact of this year's interest rate hikes are yet to be fully felt. The economy also faces headwinds from lasting Brexit-related disruptions and the recently-announced tightening of fiscal policy.  
  • A correction in the British housing market is well underway, with both prices and sales dropping rapidly. Falling mortgage approvals suggest the market will weaken further. The Bank of England is expected to continue to hike interest rates to combat inflation, but this will add to the stress on the housing market. We expect the central bank to pause in early 2023, despite unfinished business on the inflation front. 


  • The Japanese economy contracted in the third quarter, largely due to a one-off surge in imports on the back of a decline in the yen’s value. We expect the economy to rebound in the current quarter, led by pent up-demand and easing supply chain disruptions. The deteriorating external macroeconomic environment will keep the economy from reaching its full potential.
  • At its December meeting, the Bank of Japan (BoJ) maintained its asset purchase program but surprised observers with a change to its yield curve control (YCC) program. The tolerance range for 10-year government bond yields expanded to +/-0.50% from +/-0.25%. The move is aimed at enhancing the sustainability and effectiveness of YCC; in our view, it is not a beginning of tightening. Inflation is likely to fall below the 2% target by the end of 2023, led by a host of factors such as energy subsidies, lack of sustained wage pressures and weak demand. As a result, we expect the BoJ to maintain the YCC policy even after the change in leadership at the central bank in April 2023.


  • The recent recalibration of virus control measures reflects a greater focus on economic stability. While the timeline for exiting zero-COVID has moved up, the recovery will likely be slow and bumpy. A surge in infections, weak consumer confidence, lingering property sector woes and the deteriorating external environment will all continue to hold the Chinese economy back.
  • Chinese policymakers have been making efforts to avoid a sharp housing market correction without adding to existing imbalances. The 16-point rescue package for the property sector will bring a much-needed reprieve for developers and help completion of stalled housing projects. While this would avert a meltdown, the recovery will likely be protracted, given weak household sentiment and softening property prices.

GEO Economic Forecast - December 2022

Meet Our Team

Carl R. Tannenbaum

Carl R. Tannenbaum

Executive Vice President and Chief Economist
Ryan James Boyle

Ryan James Boyle

Senior Vice President, Senior Economist
Vaibhav Tandon

Vaibhav Tandon

Vice President, Economist


Information is not intended to be and should not be construed as an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Under no circumstances should you rely upon this information as a substitute for obtaining specific legal or tax advice from your own professional legal or tax advisors. Information is subject to change based on market or other conditions and is not intended to influence your investment decisions.

© 2022 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the U.S. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. For legal and regulatory information about individual market offices, visit