The outlook for the world economy is improving thanks to an acceleration of growth in the short term, while inflation will close 2023 at 7%. By region, the United States will grow by 1%, but will enter recession in the first quarter of 2024, while the Eurozone will grow by 0.6%, Latin America by 1.6%, and Asia Pacific by 2.5%.
MAPFRE Economics, MAPFRE’s research arm, has raised the global growth forecast to 2.8% in 2023 — up from 2% at the beginning of the year — as we see a better overall contribution from all economic regions, thanks to an acceleration of growth in the short term. Expected growth for 2024 has also increased to 3% from the previous 2.7%
The report “Panorama Económico y Sectorial 2023: perspectivas para el segundo trimestre” [Economic and Sectoral Landscape 2023: second quarter outlook] highlights that average inflation is expected to stand at 7.0% in 2023 and 4.9% the following year, as wage pressures will remain insufficient to trigger second-round effects. At the same time, a loss of economic vigor throughout the year is likely due to a marked slowdown in demand in response to the delayed effect of monetary tightening initiated in 2022, restricted access to credit, and a fiscal policy that will continue to move into more neutral territory.
The United States will grow by 1% this year and enter recession in the first quarter of 2024, a slowdown that is now creeping into many sectors. Economic activity is being sustained by household expenditure of savings accumulated during the pandemic, while tighter financing conditions will become apparent in levels of consumption in the coming quarters.
This tightening of financial conditions will dampen supply levels in the Eurozone, although for the first two quarters of 2023, the outlook has become more positive than what was predicted a few months ago, as some indicators are improving due to the visible drop in energy costs and the moderate normalization of production chains. MAPFRE Economics expects 0.6% growth for the region this year.
Asia, on the other hand, will continue to act as a counterweight to the developed economies and will grow by 2.5%. This is thanks to the still positive external demand that is keeping production levels high, inflation that remains contained, and the reopening of China, which is likely to produce positive synergies.
As for Latin America, the region is expected to grow by 1.6% on average, supported by a weaker dollar, slowing inflation that is dragging real interest rates into positive territory, a more benign loss of external dynamism than anticipated, and a stronger recovery in China. However, while the overall outlook is resilient, countries vary greatly in how they are performing: Argentina and Chile will close 2023 with a decrease of 0.7% and 0.8%, respectively, while Mexico will grow by 1.2%, Brazil by 0.8%, and Peru by 2.1%.
For Spain, the firm has raised its forecast to 1.7% in 2023 — up from 1% a few months ago — driven by moderating energy costs and the normalization of production chains. Spain’s economy is not expected to contract in any quarter thanks to the recovery of net exports and a reasonable consumption performance despite inflation and high financial costs. If this remains true, Spain will exceed its pre-pandemic production level this year.
Impact on the insurance industry
As usual, the report includes an analysis of how the economic environment will affect the performance of the insurance industry. The experts at MAPFRE Economics explain that the better performance of equity indexes this year, after the falls experienced in 2022, may bolster the rollout of life insurance products in which the policyholder assumes the investment risk. The industry can also take advantage of the higher returns offered by fixed income in mixed products launched on the market.
The automobile sector is showing clear signs of improvement due to the normalization of supply chain problems, thus improving the outlook for the business and profitability of auto insurance. Nevertheless, the tightening of financing conditions for purchasing new vehicles may weigh on the business in the coming months.
The high interest rate environment resulting from tight monetary policies will continue to be an additional stimulus for the savings-linked life insurance business, while lower inflation, good exchange rate performance in certain markets (such as Brazil and Mexico), and high interest rates may help to improve the profitability of the insurance sector in 2023 after the challenging year experienced in 2022.