Who will be the world’s top 5 largest economies in 2026

1. United States:  USD 29.3 trillion in 2026

FocusEconomics panelists see the U.S. retaining its title as the world’s largest economy over the next few years, forecasting nominal GDP of USD 29.3 trillion in 2026. Healthy private consumption and fixed investment, growing energy output, a flexible labor market, still-favorable demographics and a supportive fiscal policy will all aid activity. However, the Fed’s hawkish monetary stance poses a risk to domestic activity, while the political gulf between Republicans and Democrats is hampering structural reforms and endangering social stability. On the external front, growing frictions with China—over technology and Taiwan in particular—will hamper bilateral trade between the two countries and could spark a full-blown conflict. Moreover, the U.S. will shed its relative economic clout: While in 2000, the U.S. economy was around four times the combined size of the BRIC economies (Brazil, Russia, India and China), the BRICs will be around 15% larger than the U.S. in 2026.

2. China:  USD 24.3 trillion in 2026

Our panelists forecast Chinese GDP at USD 24.3 trillion, or roughly 83% of U.S. GDP, in 2026. In 2021, the corresponding figure was around 77%. Near-term economic momentum will be hampered by stop-start Covid-19 restrictions and a housing market downturn. However, China still has strong potential for catch-up growth in the longer term, given that per-capita income is only a small fraction of developed-country levels. Risks to the outlook are myriad, though. In recent years, the government has taken a more central role in the economy, which could lead to a misallocation of resources. The prolongation of strict Covid-19 restrictions would harm demand and competitiveness, and deteriorating relations with the West will continue to hamper trade and the transfer of technology and ideas. A possible invasion of Taiwan—while seemingly unlikely—is a key downside risk to the economic outlook.

“Growth will remain on a decelerating trend over the medium to long term. Rapid demographic ageing will be a primary factor. Technological change will drive productivity growth, but the self-sufficiency drive will generate economic inefficiencies. Increasing reliance on the state sector to drive economic activity will also worsen the competitive and discriminatory pressures facing some private and foreign firms.” – The EIU 

3. Japan: USD 5.4 trillion in 2026

Japan will remain the world’s third-largest economy over the next few years, with nominal GDP of 5.4 trillion in 2026 according to our panelists’ forecasts. Extensive fiscal support and the loosest monetary stance of any major developed economy will prop up activity at home. However, Japan will continue to lose relative economic clout compared to both high-income and emerging-market rivals. A shrinking population will feed through to anemic growth of 1.2% on average in 2023–2026. At the beginning of the 21^st century, Japan’s nominal GDP was roughly half that of the U.S.; by 2026, it will be less than a fifth. Fiscal sustainability concerns amid an aging, shrinking population, low uptake of digital services, an ingrained low-inflation mindset and a rigid labor market cloud the horizon.

“Accelerating structural reforms will be critical to boost productivity and wages and improve income distribution. Beyond the pandemic, Japan’s ageing and shrinking population will continue to depress productivity, investment, and real GDP growth. To ease the demographic-driven growth slowdown and reflate the economy, Fund staff analysis suggests that implementing a mutually supportive set of structural reforms complemented by accommodative monetary policy could over the medium term boost GDP by as much as 11 percent and raise prices by 3 percent compared to the baseline.” – The IMF

4. Germany: USD 5.2 trillion in 2026

Germany is projected to cling to fourth place, with nominal GDP of USD 5.2 trillion. While a stable policy environment and stronger government investment will support activity in the coming years, the economy will be hindered in the near term by gas shortages and tighter monetary policy. Out to 2026, a deteriorating demographic profile will weigh on growth; the population is projected to begin declining in 2025. Moreover, the shift to electric vehicles could spell trouble for the country’s crucial car industry, given the need for substantial retraining, retooling and restructuring of workforces to take advantage of job opportunities opening up in the electric vehicle supply chain.

5. India: USD 5.0 trillion in 2026

India is set to become the world’s fifth largest economy by 2026, with nominal GDP of USD 5.0 trillion, overtaking the UK. Growth will be spurred in the coming years by surging consumption, investment—from both domestic and foreign firms—and exports, while Prime Minister Modi’s Make in India agenda could spur the manufacturing sector. GDP growth will average over 6% a year out to 2026. That said, the government’s increasing attempts to pick winners could result in an inefficient use of resources, such as the USD 10 billion of public money earmarked to build an indigenous semiconductor industry. Moreover, the country’s protectionist bent—India bowed out of the Asia-wide RCEP trade deal in 2019 for instance—will dampen potential growth, as will shoddy infrastructure, significant red tape and economic scarring from the pandemic.

“Despite reopening benefiting the contact intensive services sectors, the underwhelming performance of the most vulnerable segments suggests potentially deeper scarring. Outside of agriculture, which was not impacted by the pandemic, these three sectors – manufacturing, construction & trade, and hotels, transport & communication – are also the ones that employ more unorganised sector workers. Their slower rebound, despite reopening, suggests firms have either shutdown or are no longer contributing to production, whereas larger firms have thrived and gained market share. To us, this suggests that the steady state growth moderated after the pandemic struck and at this stage is running even below our estimate of 5.5-6.0%.” – Analysts at Nomura

Originally published in December 2017, updated in November 2022

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When asked what this might mean for the South African rand, Dirina said that, “while the recent positive news regarding retail sales can help the currency in the short term, there needs to be improvements in other fundamental areas of the economy to see a strengthening of the currency in the long term.”

Poorer than expected trade figures from China were released in mid-April as declining exports and weak imports sent ripples through world markets, especially South Africa. “South Africa’s currency hit a nearly two-week low against the dollar on Monday this was right after China, which is a major trade partner of South Africa, released its weak trade figures,” Dirina said.

However, despite the decrease in value of the rand as a result of China’s poor showing, Dirina stated that FocusEconomics expected the currency to bounce back in the mid-term. “In the three-month horizon FocusEconomics Consensus Forecast expects the currency to gain some ground and trade a 11.93 against the U.S. dollar and this is an expectation that the economy will improve in the following quarter.”

Dirina asserted that this trend will more than likely continue in the long-term and end the year at a very ambitious 11.57 rand to the USD. However, she did warn that the currency’s future is still surrounded by uncertainty, as the country still has a lot to do regarding much maligned power deficiency issues and labor strikes.

“For 2015 our panel expects the currency to gain some ground and end the year at 11.57 rand to the dollar, however, we can say that the currency remains highly exposed to swings in risk sentiment mainly due to the country’s external imbalances and risk of more labor strikes and power supply shortages.”

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This is not just a problem in developed economies. Emerging markets and even the poorest countries in the world have been gorging themselves on cheap debt. According to the IMF, debt-to-GDP ratios in emerging market and middle-income economies have reached almost 50%, levels that have not been seen since the 1980s during the Latin American debt crisis; a decade that has come to be known as, “the Lost Decade.” Even the world’s poorest economies, which had their debt written off in 2005 by the G7 countries’ Gleneagles agreement, have seen their debt-to-GDP surge to 40% of GDP.

With global debt levels at all-time highs and global growth appearing to be on the downward trend going in to 2019, the challenge for central banks and governments will be to reduce sovereign debt by following more prudent fiscal policies i.e. bring fiscal deficits under control and reduce state reliance on debt.

With that said, let’s take a look at the top 10 countries in terms of public debt-to-GDP according to the FocusEconomics Consensus Forecasts for 2019 through 2023. Find the full list below the infographic.

Public Debt Forecasts 2019-2023

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Go East

As has been the case in recent decades, our Consensus is for Asian economies to record by far the fastest growth among emerging markets this year. Favorable demographics, relative institutional stability, high savings rates and openness to global trade can all help explain Asian exceptionalism. Among the region’s economies, Bangladesh, India and Vietnam are expected to be the top performers, while China should expand by around 5% thanks to the removal of Covid-19 restrictions.

Africa Rising

Sub-Saharan Africa (SSA) is likely to be the second-fastest-growing world region. And when excluding the sluggish economies of South Africa and Nigeria, growth would be over 4%, comparable to the rate in Asia. SSA’s fast-growing population, high demand for its commodities—many of which are essential to the green transition—and gradual improvements in governance all support the outlook. However, the reliance on the primary sector leaves the continent at the mercy of commodity price fluctuations and extreme weather events.

Middle of the Road

The Consensus among our panelists is for the Middle East and North Africa to record roughly 3% growth this year, a slowdown from last year as the region’s oil output stagnates and oil prices pull back. That said, economic reforms aimed at diversifying away from oil will support growth among energy exporters, with the UAE the undisputed leader on the reform front. Recent improvements in intra-regional relations also bode well, although Israel’s new right-wing government risks undoing part of the country’s rapprochement with Arab states.

Latin America Lagging

Latin America is forecast to grow by a paltry 1.0% this year, according to our panelists. The region’s central banks have been the world’s most aggressive over the last 18 months, with interest rates now well in double digits in many countries. In addition, investment will be hit by sociopolitical uncertainty—be it in the form of unrest in Peru following the arrest of former President Castillo, the lack of clarity over Chile’s new constitution, or investor concerns over fiscal policy in Brazil under Lula.

Battle Scars

Eastern Europe will be the worst-performing emerging market region, largely due to expected contractions in Russia and Belarus as Western sanctions tighten. Other Eastern European economies will suffer from damaged trade ties with Russia, high inflation and tighter monetary policy.

Insights from Our Analyst Network

On Africa, the African Development Bank said:
“The economic resilience of African countries in the short to medium term come with cautious optimism given the considerable global uncertainty. The risks of debt default could increase in some Afri­can countries—given the already high accumula­tion and changed structure of public debt in the past decade, the additional financial pressures created by the appreciating US dollar, and the tightening monetary conditions globally. The high dependence on exports of primary commodities with limited value addition could delay the struc­tural transformation presented by the green tran­sition. In addition, political risks could rise in 30 African countries.”

On China, Goldman Sachs analysts said:
“The rapid improvement in domestic mobility and solid January-February activity data suggest China’s post-reopening recovery appears stronger than our previous expectations, thanks mainly to the frontloading of reopening impulse and fiscal support. However, this also leaves less of a reopening boost for 2024 and slightly increases the risk of earlier policy normalization later this year than our previous baseline. As such, we upgrade our Q1 GDP growth forecast.”

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The U.S. government officially reached its USD 31.4 trillion borrowing limit on 19 January, although a series of “extraordinary measures” should allow the administration to muddle through until at least June before borrowing constraints bite. For now, financial markets are sanguine; the S&P 500 stock market index is up so far this year, and 10-year Treasury yields have been broadly stable. The U.S. has never intentionally defaulted on its debt, and historical standoffs over the debt limit have always resulted in either the Republicans or the Democrats blinking eventually.

However, the risk of a prolonged Congressional stalemate appears higher this time due to the polarized political landscape. Republican House Speaker McCarthy was himself only elected to the post after 15 ballots among members of his party, and promised harsh public spending cuts in order to secure the support of far-right Republicans; the Democrats flatly reject such cuts.

If no agreement is reached to raise the debt ceiling, the government will be forced to cut spending to match revenue once the Treasury’s “extraordinary measures” run their course. With the Consensus among our panelists for a 2023 fiscal deficit of nearly 5% of GDP, this would pull a vast amount of public expenditure from the economy virtually overnight. A combination of furloughing, deep Federal spending cuts, a public debt default, credit rating downgrades, stock market falls and higher interest rates would likely ensue, with the impact magnified the longer the debt ceiling dispute remains unresolved.

There are steps the authorities could take to mitigate the damage. The government could attempt to prioritize certain expenditure, such as making bond payments at the cost of slashing departmental spending in an attempt to calm financial markets. There has also been talk of the government depositing a newly-minted coin with the Fed in exchange for cash, or swapping outstanding bonds for new “premium” ones with a far higher interest rate. And the Federal Reserve would surely intervene in some form or other; in the past, Fed officials have floated the possibility of buying defaulted Treasury bonds while selling unaffected ones for instance.

However, none of the Treasury’s options would completely avert the fallout from the debt ceiling binding, and the Fed would be loath to bail out the government due to concerns over inflation and political independence. As such, for now, the economy’s best hope of emerging unscathed is that the severe consequences of default eventually focus politicians’ minds—before it is too late.

Insights from our Analyst Network

On the outlook, the EIU said:

“We ultimately expect a deal to be reached to raise the debt ceiling, given the severe consequences of a US debt default. A last-minute compromise remains the most likely scenario, given the depth of partisan tensions in Congress. As a result, brinksmanship over the debt ceiling will increase economic uncertainty in the coming months and distract lawmakers, weakening government effectiveness.”

On Fed intervention, ING analysts said:

“Federal Reserve printing could be employed as a safety net […], where politics makes a mistake, and the Fed steps in as a payer of last resort. The Fed could rationalise doing so as a means of protecting the system. It could certainly soften the impact and indeed could prevent a technical default in the first place. However, this would not be a structural solution. Moreover, it poses its own independent threat to the financial system as the US dollar is undermined by monetary financing of the national debt.”

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There will be some similarities to those heady years going forward. Lula will once again look to prioritize social spending; he hopes to relaunch his signature Bolsa Familia cash transfer program in the coming months. And he is likely to combine this aim with fiscal prudence in order to keep investors onside.

But the parallels with the 2000s will end there. For starters, Brazil’s impressive expansion during Lula’s first two terms was driven partly by a prolonged commodities supercycle; no such supercycle is expected in the coming years, with prices for Brazil’s key export commodities—such as oil, iron, soybeans and sugar—all seen declining over our forecast horizon following a bumper 2022.

Moreover, the public-debt-to-GDP ratio is around 15 percentage points higher than the average of 2002–2010, the budget shortfall is far larger, and sovereign credit ratings are weaker. As a result, the government has less fiscal room for maneuver, and markets will be watching carefully for signs that the new government is serious about fiscal responsibility. In this regard, a new set of fiscal rules due to be announced later this year will be key.

In addition, following years of economic malaise, a pandemic and Bolsonaro’s divisive premiership, sociopolitical tensions are higher than in past decades—as evidenced by supporters of the ex-president storming government offices in January. These tensions could translate into further street violence and legislative gridlock, and are likely to constrain investment.

The upshot is that Brazil’s economic growth is expected to be the second-weakest in Latin America this year—only ahead of Argentina’s. And growth over Lula’s four-year term is seen below the regional average, held back by large economic inefficiencies. As a result of this sluggish momentum and higher social spending, the Consensus among our analysts is for public debt to continue to rise remorselessly ahead. Brazil may have a new president, but its previous economic problems are not going away.

Insights from Our Analyst Network

On the policy outlook, the EIU said:

“Lula’s pragmatic stance so far has enabled fruitful talks with centrist parties, and a likely working legislative majority will allow the next government to make progress on part of its agenda, including obtaining legislative approval for new fiscal rules so as to accommodate higher expenses inherited from Mr Bolsonaro and Lula’s own proposals for increased social spending. Another priority for next year for the new finance minister, Fernando Haddad (a long-standing Lula ally), will be to pass a tax reform. […] If the new government does not commit to fiscal responsibility, which represents a serious risk to our forecast for a relatively moderate expansionary fiscal stance, the central bank will probably resume monetary tightening.”

On the near-term economic outlook, Goldman Sachs’ Alberto Ramos said:

“We expect real activity to remain soft throughout 1H2023 given a number of domestic and external headwinds to growth. […] Diminishing marginal returns from the economic reopening dynamics, tight domestic monetary and financial conditions, high levels of household indebtedness, low levels of economic slack (including a labor market with the unemployment rate at the NAIRU), moderating job creation, deteriorating consumer and business convenience, and the incipient turnaround in the credit cycle are expected to generate headwinds to services activity.”

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U.S. oil output fell steadily from the 1980s to around 5 million barrels per day by the mid-2000s, driven by a prolonged period of depressed oil prices. But the sands have now shifted: Thanks to the explosion of the shale industry, American oil production has surged to around 12 mbpd, turning the country into a net energy exporter for the first time in decades.

The future is bright. The Consensus among our analysts is for WTI oil prices to trade above USD 80 per barrel in the coming two years—far above producers’ breakeven levels, which range from USD 48 to USD 69 per barrel for new wells. Together with pipelines additions, this should bring output to a record high of 12.8 mbpd by 2024 according to the Energy Information Administration.

As a result, the U.S. will stretch its lead as the world’s largest crude producer; our panelists see the next biggest player, Saudi Arabia, pumping roughly 11 mbpd in 2024. This bodes well for exports and—crucially—energy security. Back in the early 1970s, a U.S. economy dependent on foreign energy was hit hard by OPEC’s oil embargo. Today, thanks to the resurgence of domestic energy production, a repeat of such a scenario is a distant prospect.

Insights from Our Analyst Network

On the outlook for oil prices this year, the EIU said:

“Oil prices will remain subject to diverging forces in 2023, although EIU expects that, on the whole, upward pressures will prevail. On the one hand, the steep rise in prices of oil and gas in 2021-22 is contributing to a sharp slowdown in energy demand in many OECD markets. Oil traders remain concerned about recession risks amid aggressive monetary tightening by OECD central banks. On the other hand, China’s changing policy environment now moves from being a major downside risk to our demand and global price forecasts to a major upside risk—much will depend on how quickly the country’s economy reopens in 2023 and the severity of covid outbreaks in the first half of the year.”

On U.S. production, EIA analysts said:

“Our forecast of crude oil production in the Permian increases by 470,000 b/d to average 5.7 million b/d in 2023. Completion of new natural gas pipelines will allow producers to transport more of the natural gas that is produced along with crude oil (associated natural gas) to market, removing a potential constraint on crude oil production. Producers currently flare some of the natural gas they produce. We forecast that crude oil production in the GOM will increase by 120,000 b/d in 2023, while production in other regions of the United States (except for the Permian) declines slightly. In 2024, we forecast that crude oil production in the Permian will increase by 350,000 b/d.”

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Russia has so far weathered the economic impact of war and sanctions better than even our more optimistic analyst was forecasting early last year. GDP likely fell 3.6% in 2022—a far cry from the 10.2% downturn expected in our May 2022 report. Multiple factors explain this surprisingly robust performance. In particular, sky-high energy prices have buoyed government coffers and permitted fiscal largesse. Moreover, the Central Bank has succeeded at stabilizing the ruble—dampening inflation—and has in recent months slashed its policy rate to below 2021 levels. Rock-bottom unemployment and the reorienting of manufacturing towards military output have also provided support.

In 2023, we see more of the same: A continued economic decline, like air deflating gradually from a balloon, but no large-scale collapse. The Consensus among our analysts is for a 3.0% contraction. The energy sector will take a hit from the EU’s ban on Russian oil exports and the G7’s oil price cap, as well as lower exports of natural gas to Europe. However, the range in our analysts’ forecasts is huge; the most optimistic is for a 0.8% expansion, and the most pessimistic is for a 12.3% decline.

As expected, the war in Ukraine will be the key determinant of the outlook. If Russia is forced to call up more troops, this would likely spark emigration and reduce the size of the consumer market; it is estimated that hundreds of thousands of Russians fled the country following the partial mobilization in September 2022 for instance. On the flipside, a ceasefire would be growth-positive as it would likely lead some Russians to return home and reduce trade disruption.

An escalation of the conflict—such as the use of tactical nuclear weapons or strikes on NATO territory—would risk a full-blown war with the West and potentially huge economic damage. Although in such an apocalyptic scenario, the decline in GDP would be the least of anyone’s concerns.

Insights from Our Analyst Network

On Russia’s near-term outlook, Goldman Sachs analysts said:

“We think that the annual growth will remain negative until mid-2023, although sequentially growth will likely be relatively flat with domestic demand being supported by a fiscal boost and a normalisation of private sector savings rates while net exports will likely continue to contribute negatively as imports recover. We forecast above consensus growth of -3.3% for 2022 and -1.3% for 2023.” 

On the longer-term economic outlook, analysts at EIU said:

“Russia’s fiscal capacity will be stretched in 2023. The high costs of the war and sanctions on the economy will put pressure on the federal budget. To maintain social support, the government will start drawing down reserves from its National Wealth Fund. We expect Russia to be the worst-performing G20 economy in 2023 and among the worst performing globally. The impact of sanctions will delay the economic recovery; we expect real GDP to recover to 2021 levels only in 2029 (at the earliest).” 

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The concept was created by U.S. economist Arthur Okun in the 1970s. This was a decade in which surging oil prices led much of the world to suffer from both high inflation and unemployment, a phenomenon known as stagflation. The parallels with today are clear: Surging commodity prices are hitting purchasing power and forcing central banks into aggressive monetary tightening, which could hit labor markets over the next year and send many countries into a stagflationary scenario.

The misery index thus remains more relevant than ever. In this insight piece, we look at which are expected to be the world’s most miserable economies next year, using the Consensus Forecasts of our panel of expert analysts. For Zimbabwe and Syria, unemployment rate forecasts are unavailable, so the latest historical data point was used.

Click on the image to view a larger version

The misery index measures economic conditions by summing the unemployment rate and the inflation rate; the higher the summed reading, the more miserable the economy in question.

The concept was created by U.S. economist Arthur Okun in the 1970s. This was a decade in which surging oil prices led much of the world to suffer from both high inflation and unemployment, a phenomenon known as stagflation. The parallels with today are clear: Surging commodity prices are hitting purchasing power and forcing central banks into aggressive monetary tightening, which could hit labor markets over the next year and send many countries into a stagflationary scenario.

The misery index thus remains more relevant than ever. In this insight piece, we look at which are expected to be the world’s most miserable economies next year, using the Consensus Forecasts of our panel of expert analysts. For Zimbabwe and Syria, unemployment rate forecasts are unavailable, so the latest historical data point was used.

1. Zimbabwe

2023 misery index: 187% (inflation rate) + 19% (unemployment rate) = 206

Zimbabwe is expected to be the world’s most miserable economy next year. The inflation rate is set to be the highest of any country, driven by rapid money supply growth and a collapse in the local currency, which depreciated from around ZWD 100 per USD at the outset of 2022 to over 600 in early November. The unemployment rate was estimated by the statistical office to stand at 19.3% in Q1 2022. High inflation and unemployment, together with a weak business environment, political instability, poor relations with the West and sky-high interest rates will continue to hold the economy back.

“Further efforts are needed to durably anchor macroeconomic stability and accelerate structural reforms. In line with recommendations from the 2022 Article IV consultation, the near-term macroeconomic imperative is to curb inflationary pressures by further tightening monetary policy, as needed, and allowing greater exchange rate flexibility through a more transparent and market-driven price discovery process, tackling FX market distortions, and eliminating exchange restrictions.” – International Monetary Fund

2. Venezuela

2023 misery index: 130% (inflation rate) + 34% (unemployment rate) = 164

As has been the case for many years, Venezuela will continue to experience extremely high inflation in 2023, fueled by a projected collapse in the local currency, shortages and sustained money printing—money supply is seen rising by triple figures next year. Continued tough economic conditions will keep the unemployment rate at one of the world’s highest levels. The evolution of U.S. sanctions is a key risk to both indicators. Were the U.S. to loosen sanctions, this would support the currency, government finances, and economic activity more broadly, reducing inflation and unemployment. That said, broad sanctions relief is only likely if the Venezuelan government commits to holding free elections.

“In the short term, efforts to bring about disinflation will be undermined by elevated global commodity prices. In the medium to long term, persistent domestic supply shortages (stemming from Venezuela’s limited productive capacity) will be a hindrance, as will monetary policy challenges. More specifically, the BCV’s interventionist approach to currency management has produced renewed real bolívar overvaluation, pushing living costs up for the large swathe of Venezuelans who transact in US dollars but face prices in bolívares.” – Economist Intelligence Unit 

3. Lebanon

2023 misery index: 87% (inflation rate) + 14% (unemployment rate) = 101

Lebanon remains in the grips of financial, currency and political crises, with shortages of goods, the collapse of basic services and no fully functioning government. The weak parallel market exchange rate, an expected devaluation of the pegged exchange rate to the dollar, utility tariff hikes and subsidy cuts will spur inflation in 2023. The official unemployment rate according to the World Bank’s definition is forecast to be 14% next year, although actual labor market conditions will likely be considerably worse. The appointment of a government and the implementation of IMF-mandated reforms will be crucial to reducing the country’s misery index, but such a scenario remains a distant prospect.

“Inflation is expected to average […] amongst the highest rates globally, despite narrow money supply growth averaging 11 percent in 2022. This is primarily due to a change in the dynamic relationship between inflation and depreciation: the CPI exchange rate pass-through has averaged 134 per cent for 6M-2021, up from an average of 75 percent since the onset of the crisis, mainly on account of the reduced share of goods imported at BdL subsidized exchange rates.” – World Bank 

4. Argentina

2023 misery index: 91% (inflation rate) + 9% (unemployment rate) = 100 

Argentina will continue to suffer next year from excruciatingly high inflation, a result of persistent currency depreciation and money printing. The currency weakened around 35% in the first 10 months of 2022, and our analysts see a depreciation of roughly 45% in 2023 as investors’ confidence in the peso remains non-existent. Moreover, an economic slowdown is expected to push up the unemployment rate in 2023, with lower commodity prices and weaker growth abroad weighing on momentum. In order to durably lower both inflation and unemployment, deep macroeconomic reforms are needed to remove the system of multiple exchange rates, reduce government interference in the economy, stimulate exports and investment, and end monetary financing of the fiscal deficit.

“Overall, despite extensive and broadening formal and informal price control mechanisms (including FX), high inflation is deeply entrenched and ingrained in price and wage formation mechanisms. This reflects deep structural macro policy imbalances and the failure of the monetary authority to instill confidence in the currency and thus generate low and stable inflation. Argentina has yet to develop a credible medium-term fiscal consolidation plan and lacks a coherent conventional monetary strategy/anchor.” – Sergio Armella, economist at Goldman Sachs 

5. Syria

2023 misery index: 63% (inflation rate) + 11% (unemployment rate) = 74 

Syria’s economy has been ravaged by over a decade of civil war, which will continue to feed into elevated inflation and unemployment next year. International isolation, destroyed infrastructure, economic disruption caused by conflict, a limited supply of basic goods and a weak currency will all push up inflation, while the extremely poor business environment and low government spending will spur unemployment. That said, inflation should be around half its 2022 level in 2023, as international price pressures ease. More durable reductions in inflation and unemployment will require a more stable security situation, improved international ties and accelerated reconstruction efforts to boost the economy’s supply capacity.

“Instability will be particularly acute in 2022-23 owing to dire socioeconomic conditions and still-volatile pockets of resistance in the north-western and southern provinces. Mr Assad will try to offset the erosion of purchasing power by rapid inflation and currency depreciation by implementing price controls and shoring up foreign exchange, but his regime’s capacity to do so will be limited. Policymakers will attempt to revive the economy, but a lack of access to debt and ongoing bouts of conflict will hinder efforts.” – Economist Intelligence Unit

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Accelerating momentum in China, although near-term outlook is choppy:
China’s rapid rollback of Covid-19 restrictions in recent weeks bodes well for economic activity in H2 2023. However, momentum in Q1 is likely to be constrained by a surge in infections provoking caution among consumers and worker absenteeism. Beijing streets were reportedly largely empty in mid-December for instance as people fell ill and sought refuge from the virus. If deaths rise rapidly, there is also the possibility of a snap-back of some restrictions, which would harm economic activity. The Consensus among our analysts is for annual GDP growth to accelerate from 3.0% in Q1 2023 to 4.8% by Q4 2023.

Oil prices to average above USD 90 per barrel:
An expected recovery in China and tighter oil supply as Russian supply is squeezed from the market are expected to push Brent crude oil prices to average around USD 93 per barrel next year, up from their current level of slightly above USD 80 per barrel. This bodes well for oil-exporting economies, but will contribute to relatively high global inflation by historical standards. OPEC’s production decisions, a possible revamped Iranian nuclear deal, instability in important oil exporters Iraq and Libya, and U.S. sanctions on Venezuelan oil supply will be important to watch.

U.S. dollar to remain close to current level:
After a relentless upward march until late September, the U.S. dollar has since depreciated notably against other currencies as lower-than-expected U.S. inflation drove market hopes of less aggressive Federal Reserve tightening going forward. For instance, the USD went from below parity with the euro to an exchange rate of USD 1.06 per EUR by mid-December. Our analysts see the USD ending next year close to its current level. Geopolitical tensions and the pace of Fed hikes relative to those of other central banks will have a key bearing on the dollar next year.

Insights from Our Analyst Network

On China, analysts at Nomura said:

“We reckon that the incoming migration around the Chinese New Year holiday in late January could bring about an unprecedented spread of Covid and severe disruptions to the economy. Despite the substantial resources devoted to the heavy-handed zero Covid policy over the past two years, China does not appear to be well prepared for a massive wave of Covid infections, and it may have to pay a high price for its procrastination on embracing a ‘living with Covid’ approach. In our view, ending zero Covid is both necessary and inevitable; it is the precondition for a growth recovery in 2023, and we raised our growth forecast for 2023 to 4.8% from 4.0% a week ago on the sudden and dramatic shift. However, we continue to caution that the road to a full reopening may still be painful and bumpy.”

Regarding recession in the West, ING’s Carsten Brzeski said:

“We should get a rather textbook-style recession in the US with the central bank hiking rates until the real estate and labour markets start to weaken, inflation comes down, and the Fed can actually cut policy rates again. […] look forward to an end to the typical cycle in the eurozone, where a mild recession will be followed by only very subdued growth, with a risk of a ‘double dip’, as the region has to shoulder many structural challenges and transitions.”

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