The economic outlook as of autumn 2022 in one chart
I like a #dataisbeautiful chart that tells a story, and this one is unequivocal.
The chart shows how economic forecasts (for GDP, in the top row, and inflation, in the bottom row) for 2022 (left column) and 2023 (right column) have changed as forecasters have updated their predictions each month (X-axes). While the data in this chart may not be “new news” for anyone following the perturbations in the UK economy regularly, I think it neatly illustrates the fluctuations in confidence over the last few months:
- Inflation forecasts for 2022 have increased dramatically, as the repercussions of the war in Ukraine have filtered into energy prices and as expectations of a swift resolution have waned. [Note: There are many other factors at play, too, but energy and commodity prices are quantitatively the largest drivers of these figures.]
- GDP growth forecasts (in real terms) for this year have deteriorated somewhat, but not sharply. This mostly reflects the expectation that, despite headwinds, UK economic activity is still recovering from the COVID-19 pandemic and exhibiting an element of bounce-back in 2022.
- However, GDP forecasts for 2023 have declined significantly, and the range of forecasts has widened. A few forecasters are expecting negative growth in 2023. The median expectation in August for next year’s GDP growth (in real terms) was just 0.5%, down from 1.5% in February.
- Inflation projections for next year have increased somewhat, but also show a very large range between different forecasters. Full-year inflation in 2023 is expected to be anywhere between 0.9% to 7.7%.
Overall, the various forecasters’ views are suggesting that the UK economy is headed for a period of stagflation (high inflation coupled with near-zero or negative growth) in the near future. But, above all, they are highlighting the uncertainty inherent in the current economic situation.
My colleagues recently penned a nice summary on how businesses may want to respond, “Strategic courage in an age of volatility”. They argue that a combination of insight, commitment, and excution will give an edge to businesses wanting to not just survive, but thrive, in these turbulent times.