Recession or recovery: the economic outlook for 2023

The IMF has warned that a recession will hit a ‘third of the world this year’

Fireworks light up the London skyline over Big Ben and the London Eye just after midnight on 1 January 2023
Britain is forecast to face ‘one of the worst recessions’ in the G7 this year
(Image credit: Dan Kitwood/Getty Images)

You thought last year was bad? Get ready for worse in 2023. That was the grim message of the IMF boss, Kristalina Georgieva, this week, said the FT.

The IMF predicts that “recession will hit a third of the world this year” – and the next couple of months will be particularly “tough for China” due to the spread of Covid.

Georgieva is banking on the “remarkably resilient” US economy to help other economies “through a very difficult year”. But US resilience is by no means a done deal. Some 85% of economists canvassed in the FT’s annual poll expect a recession in the States this year, even if it turns out to be a mild one. And the message for Britain, which is forecast to face “one of the worst recessions and weakest recoveries in the G7”, was even starker.

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“The 2023 recession will feel much worse than the economic impact of the pandemic,” said labour market economist John Philpott. Others described the outlook for consumers – especially those on low incomes or with expiring mortgage deals – as “tough”, “bleak”, “grim” and “miserable”.

The ‘R’ word

“The ‘R’ word often strikes terror in the minds of the public, but recession does not necessarily imply economic disaster,” said Roger Bootle of Capital Economics in The Daily Telegraph. In fact, this one is “likely to be fairly mild”, especially in the US where GDP may fall by only 0.5%.

In the eurozone, that figure may be about 1%, and in the UK, the drop may be about 2%; but this would be much smaller than the last two recessions in 2008 and 2020. UK GDP fell by 22% from peak to trough in 2020 – “by comparison, this recession will be a tiddler”.

What happens globally will clearly have a major bearing on how things pan out in the UK. But barring another upward spike in energy prices, “it now looks as though inflation has peaked” – it could be down to 4% by the end of the year, paving the way for “rosier prospects in 2024”.

A year of ‘muddling through’

If we’re lucky, it may be a year of “muddling through”, said Nils Pratley in The Guardian. As we saw over the holiday period, “wholesale energy prices can fall as well as rise” – easing the financial pressure on governments and business. Supporting the case for “relative optimism” is the number of chief executives in consumer-facing companies who have recently “sounded more hopeful about medium-term trading”.

You can never rule out “shocks and surprises”, said David Smith in The Sunday Times. “The progress of Covid in China” remains a direct concern; and it’s “too soon to say that the energy shock is over”. But when it does end, “one of the biggest drags on the economy will be removed”. Fingers crossed.

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