Resources | Market Trends | June 26, 2023

2023 Economic Outlook: Tackling the Biggest Questions About the Rest of the Year

Is a recession on the way? Have interest rates peaked? Here’s what experts are saying about the next six months and beyond. 

Is a recession on the way? Have interest rates peaked? Here’s what experts are saying about the next six months and beyond. 

Halfway through the year, businesses are understandably curious about the rest of 2023’s economic outlook. The last few years have been marked by uncertainty and sharp, unexpected changes, so it’s only natural to wonder if things might finally be returning to some kind of equilibrium. 

Specifically, we’re all wondering: 

  • Will the economy go into a recession this year? 
  • Will central bankers continue to raise interest rates? 
  • How long until inflation returns to normal? 

Some of the world’s leading economic voices — including the US Federal Reserve, the European Central Bank, the Conference Board, the Organisation for Economic Co-operation and Development (OECD) and others — have already set out what they expect from the next several months.  

Will we enter a recession in 2023? 

According to a series of midyear updates to the 2023 economic outlook:

A global recession is unlikely, but some regions will face pressure 

The Conference Board, a business association known for its research, projects that global gross domestic product (GDP) will grow by 2.6% this year and 2.4% in 2024, thanks mostly to economic growth in Asia, with tougher conditions in the US, Europe and Central America. Generally speaking, the forecast calls for low growth over the next few years

Meanwhile, the OECD forecasts 2.7% growth this year but thinks the growth rate will improve in 2024. 

Europe is already in recession, but there’s some good news 

The euro zone already experienced a technical recession when it reported negative growth in Q4 2022 and Q1 2023. That includes Germany, which recently revised its Q1 GDP growth from 0% to -0.3%. The good news is the recession appears to be relatively mild.

The Conference Board thinks the euro zone may be close to the end of its tightening cycle but still forecasts growth of just 0.6% in 2023 and 0.9% next year. 

India appears to be at no serious risk, but …  

The OECD predicts India’s GDP will grow by 6% this year and 7% next year. JP Morgan has raised the country’s growth outlook but warns that India could be affected by lower orders if other countries suffer an economic slowdown

There’s a possibility of recession in the US, but there are doubts

The Conference Board is predicting a US recession, but it has been forced to push back the start date until later this year because the economy has continued to show “remarkable strength.” 

Hiring is still strong, though wage growth may be moderating. The housing market — one of the sectors most exposed to higher interest rates — has seen dips in existing-home sales but also a huge surge in new home construction

As long as inflation stays higher, as it’s now in the 4% range and seems to be sticking there, it’ll be harder for US GDP to go negative and technically fall into recession, said Chris Atkins, President of Capital Finance at C2FO. 

Recessions are typically measured by nominal GDP growth turning negative, but that can be misleading, especially in a time of high inflation. For example, if inflation were 5% and nominal GDP growth were 3%, then real GDP growth would be -2%, yet under the traditional definitions, there would be no recession, he said. 

“My belief right now is that there won’t be a recession, at least technically,” Atkins said. “But while the economy is OK right now, it may become more tepid and may feel a lot worse if inflation is greater than growth.”

Recently, Jerome Powell, the Fed chairman, told reporters that a “soft landing” is still possible

“I continue to think, and this really hasn’t changed, that there is a path to getting inflation back down to 2% without having to see the kind of sharp downturn and large losses of employment that we’ve seen in so many past instances,” Powell said. “It’s possible. In a way, a strong labor market that gradually cools could, it could aid that along.” 

Will interest rates continue to rise? Probably


At its meeting in mid-June, the US Federal Reserve decided not to raise rates, but it’s likely that hikes will start again in the coming months. In fact, 12 of the 18 Fed board members said they expect to approve at least two more rate increases in 2023, with the next one possibly occurring as soon as late July. (The Conference Board thinks there will be only one more increase this year.) 

“While I know that the Fed is going to do this to get back to 2% inflation because of our ballooning government debt, I think it’s a mistake,” Atkins said. “A 2% inflation target means the Fed is much more likely to push us into a recession, which may spiral on us and become much more serious.” 

The median projection from the Fed board is that benchmark rates will hit 5.6% at the end of December, 4.6% at the end of next year and 3.4% at the end of 2025.

Europe and UK

Meanwhile, the European Central Bank raised rates by 25 basis points in mid-June, to a 3.5% benchmark rate. It’s not clear if policymakers will keep going, though. ECB President Christine Lagarde expects rates will continue to increase, though other board members note that inflation has been declining faster than expected. 

Lagarde said the bank “will continue to hike at our next meeting. So we are not thinking about pausing, as you can tell,” the Associated Press reported.

The Bank of England raised rates by 50 basis points, about double what most observers were expecting, in an effort to combat persistently high inflation. That brings the bank’s base rate to 5%.


Observers now expect Canada to enact more hikes over the rest of the year after the Bank of Canada adopted an increase of 25 basis points in early June. Inflation had ticked back up again after nine months of declines. 

When will inflation return to normal? 

Right now, inflation will probably remain above normal for a couple of years in many regions. 


In the Fed’s most recent Summary of Economic Projections, the median forecast calls for inflation in total personal consumption expenditures (PCE) to hit 3.2% this year, 2.5% in 2024 and 2.1% in 2025. 


Inflation is expected to decrease from 5.4% in 2023 to 3% next year and 2.2% in 2025, the European Central Bank reported. Lower food and energy prices should help drive the improvement.


The UK, though, sees a faster path back to normal. The Bank of England believes that it could hit 2% inflation by late 2024. The bank also forecasts that inflation will drop from 8.7% right now to approximately 5% by the end of 2023. 


The Bank of Canada’s most recent forecast, issued in April, called for an inflation rate of roughly 3% by midyear, though in June, it was still closer to 4.4%. Like the UK, the Bank of Canada also sees a return to 2% inflation in 2024. 

The good news is that inflation has softened in many regions for most of the year. Unfortunately, it’s still well above the 2% target that many central banks have set, and as long as inflation remains high, policymakers will continue to use the only real lever they have: raising interest rates.

Which, of course, increases the risk of an overcorrection that leads to a longer, more painful recession. 

“We remain committed to bringing inflation back down to our 2% goal and to keeping longer-term inflation expectations well anchored,” Powell said. 

“Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.”

The bottom line on the 2023 economic outlook

Many of the forecasts contain reason for hope, including the potential for a slowdown in rate hikes and continued progress toward lower inflation. But there are still several question marks hanging over the economy. 

In an environment like this, smart companies do what they can to increase optionality — specifically, they try to minimize debt while increasing working capital. That way, if they encounter a setback like the loss of a client or higher input costs, they have the financial resources to weather difficult times. 

C2FO has built a complete toolbox of solutions for doing just that. Find the perfect option for your company’s challenge here. 

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