The global economy in 2023: continuation of weak conditions with high risks

In an environment characterized by continuing uncertainties and challenges, the economic momentum is expected to weaken further in 2023. Although the economy may already have bottomed out in the winter half-year 2022/23, a strong recovery during the year in 2023 cannot currently be expected due to a lack of positive stimulus. Firstly, there are currently no signs of de-escalation in the war in Ukraine, therefore the related uncertainties remain high. Secondly, various stabilizing factors which had recently supported economic development are losing importance. These include the corona-related catch-up effects – including investment by the private and public sectors and by companies. In addition, global supply bottlenecks are easing only slowly. Although the industry will still be drawing on high order backlogs in the first few months of 2023, these will be gradually reduced as demand weakens. In addition, high energy costs and the sharp rise in interest rates are likely to have a noticeable impact on production.

It will also be detrimental to economic development if the central banks stick to their current restrictive monetary policy. At present, a rather slower pace than recently seems to be emerging, as long as further progress is being made in containing inflation. Nevertheless, most countries are attempting to provide stabilizing impetus via fiscal policy. One example of this is the relief packages already implemented or infrastructure investments. In light of these conditions, the International Monetary Fund (IMF) raised its forecast for global economic growth in 2023 in January by 20 basis points compared with the fall forecast for 2022 to +2.9%. The IMF expects growth of 3.1% for 2024. Nevertheless, the economic risks remain very high due to the many geopolitical tensions and the disruptions to the energy and raw materials markets, coupled with the growing challenges posed by climate change.

After a radical change in the handling of the pandemic was implemented in China at the end of 2022 from the strict zero-COVID policy to stronger easing, the infection figures increased significantly nationwide in the first weeks of 2023. The further progress of the pandemic as well as the reactions of the authorities cannot be validly assessed at present. In the event of a renewed high incidence of infection, this could lead not only to a burden on consumption, but also to further production stoppages and disruptions in logistics. Nevertheless, the discontinuation of the strict zero-COVID policy is also associated with hopes of a gradual recovery of the economy in the course of 2023, although China’s economic momentum is likely to remain low. For the Southeast Asia region (ASEAN-5), which is closely linked to China’s value creation and whose exports depend to a large extent on the needs of the industrialized countries, the IMF expects growth to flatten to +4.3%. According to the IMF, India’s economy will also move along a more moderate growth path than previously expected, at +6.1%. For Brazil, the IMF expects only a slight improvement in economic development. By contrast, the experts believe that the Russian economy will remain largely cut off from major economic regions of the world due to the war and will therefore be under considerable pressure. According to the IMF’s forecasts, economic output in the developing and emerging countries will again grow only relatively moderately in 2023 by 4.0%.

Similarly, the established industrialized nations should also develop cautiously against the backdrop of current developments at the beginning of 2023. On the one hand, long-term investments in infrastructure, digitalization and projects to accelerate the energy transition are likely to continue. In addition, many industrial companies are currently working through their high order backlogs. These had built up due to both bottlenecks in materials and a lack of personnel. On the other hand, the slowdown in orders is already reflecting a drop in demand, therefore there are only very few positive signs for industrial production. In addition, the rapid rise in interest rates, which in

combination with high energy costs is dampening investment activity and private consumption, is having a negative impact. The IMF therefore expects the industrialized countries to grow by 1.2% in 2023, weaker than in the previous year. A similar development is also assumed for the United States. Its growth is currently estimated to be low at 1.4%. The IfW in Kiel even expects a recession in the US. In addition, according to the IMF, the economies of both Canada (+1.5%) and Japan (+1.8%) are expected to grow only marginally.

In Europe, high inflation, the sharp rise in interest rates and the weak global economic situation continue to have a negative impact. Although many European governments have adopted extensive packages to curb energy costs, cost pressures on industry and private households are likely to continue, further fueling inflation. In addition, the rise in interest rates and the expectation of further interest rate increases and the already lower purchasing power as a result of inflation will impact not only private consumption but also capital spending in the construction sector and on plants and equipment. Contrary to these negative signs, the leading economic institutes expect a deep recession in Europe to be averted in the winter half-year 2022/2023. In this context, the IMF has set its forecast for economic growth in the Eurozone for 2023 at +0.7%. The IfW (Kiel) assumes that the economies in Ireland, Spain and Greece will perform better than average, while only slight growth is expected for France and Switzerland and a recession (-0.6%) for the UK. According to expert opinions, the German economy is expected to stagnate. For example, the IMF currently expects Germany’s gross domestic product to grow by 0.1%. By comparison, the forecasts of domestic economists for Germany range from marginal growth (IMF: +0.3%) to negative growth (Deutsche Bundesbank: -0.7%, Ifo: -0.1%).

This macroeconomic outlook forms the basis of NORMA Group’s forecast and outlook for 2023.


Forecast for GDP growth






















Continued challenging environment for important customer industries of NORMA

Assuming that a further escalation of the war in Ukraine and an outbreak of additional geopolitical conflicts can be averted, the COVID-19 pandemic is contained or overcome, there is no recession in the global economy, and the economy stabilizes with a gradual easing of inflation and energy costs despite more difficult financing conditions, it can be assumed that the outlook for important customer industries of NORMA Group will continue to improve in the course of 2023. Nevertheless, the environment remains predominantly challenging, with the construction industry in particular facing major challenges.


Mechanical engineering

In the mechanical engineering sector, little impetus is expected in 2023 as the full order books are worked off and demand for industrial goods is currently quite subdued. Furthermore, the current supply chain problems continue to have a restraining effect, although the restrictions in this area are gradually being reduced. Additional burdens are

likely to result from the continuing rise in interest rates and the high production costs for energy-intensive industrial companies. These factors underscore the assumption that an increase in investment activity on the part of companies is unlikely in the course of the year. By contrast, efforts to digitalize and decarbonize industrial production processes and the additional acceleration in the restructuring of the energy industry caused by the Ukraine war in Europe are promoting strategic investments. Likewise, high investments in the development of regional value chains are in demand. In particular, experiences from the disrupted supply chains and the collapse of established processes based on the division of labor as a result of the geopolitical conflicts and challenges of recent years have reinforced the desire for stable value chains as well as affordable and available resources.

In the wake of these challenges, the outlook is subdued. As the short-term burdens currently outweigh the long-term opportunities, the VDMA (German Engineering Association) expects real global machinery sales to grow by only 1% in 2023. While sales in Asia and the Middle East are projected to grow moderately, the US, Canada, Latin America and Europe are forecast to suffer losses, in some cases significant ones. A sharp drop of 8% is expected in the UK, in particular, whereas Switzerland is expected to be able to maintain an estimated growth rate of 3%. Positive growth is also expected in Spain (+4%), Belgium (+4%) and the Netherlands (+1%). By contrast, sales in Italy (-3%) and France (-3%) are projected to decline. For the German mechanical engineering sector, the VDMA expects production to decline by 2% in real terms in 2023.


Engineering: real change in industry sales











– 5.0




– 1.0


3.0 1.0


Automotive industry

Based on current knowledge, the automotive industry is expected to recover slightly in 2023, despite the difficult economic situation and high interest rates. The industry experts at LMC Automotive (LMCA) expect global sales of light vehicles (LV) to increase by 6.3%, while the industry specialists at S&P Global Mobility (formerly IHS Markit) also expect similar growth (+5.6%). The German industry association VDA expects the more narrowly defined global passenger car market to grow by 4%. In addition, according to LMC Automotive, global demand for commercial vehicles (CVs) is expected to recover from the recent slump and pick up again in 2023. Likewise, production of commercial vehicles is expected to increase, although S&P Global Mobility expects the supply situation for semiconductors for the automotive industry to ease only slightly in 2023 and a structural capacity deficit to persist. Against this backdrop, LMC Automotive expects a solid but not very dynamic increase in global LV production of 4.8% in 2023. In the Asian region, LV production is expected to increase by 3.9% in China and by 3.1% in Japan, whereas a decline of 1.3% is anticipated for South Korea. The outlook is more positive in North America (USMCA region), with a forecast increase in LV production of 7.1%. The experts expect an increase of 5.8% for the US. Europe is also showing good development with growth of 7.1%, with Western Europe in particular growing significantly at 10.6%. According to current forecasts, the UK, Italy and Spain should develop positively and show double-digit growth, whereas France (+7.6%) is expected to show a slightly weaker trend. The experts are currently forecasting very strong growth of 14.1% for LV production in Germany. By contrast, the VDA expects German domestic production of passenger cars to increase by 6%.

The acceptance of electric vehicles has grown steadily in recent years and has gained additional momentum with the energy transition in Europe pushed by politicians – also as a result of the energy crisis caused by the Ukraine war. Similarly, stricter environmental regulations have accelerated the transformation. It can therefore be assumed that the technology transformation in the automotive sector will continue to gain momentum and thus require a faster expansion of the charging infrastructure in order to be able to meet demand as required. The industry experts at LMC Automotive therefore expect global production of purely battery-powered vehicles (BEV) as well as plug-in hybrids (PHEV) to increase by 38.7% to 15.0 million units in 2023. While the BEV segment is expected to grow disproportionately by 42.5%, PHEVs could grow by 27.6% according to current estimates. Other alternative drive systems such as fuel cells, on the other hand, remain insignificant to date.


Automotive industry: global production and development of sales




























Construction industry

As a result of dynamic population and economic growth and increasing urbanization in the emerging countries of Asia, there is a huge need for construction investment in the medium and long term, which will provide major structural impetus for the construction industry in the region. The countries there are investing large sums in infrastructure, water management, environmental protection and housing construction to cope with high population growth. Accordingly, the construction industry is structurally a major pillar of the economy there. In 2023, however, the outlook is likely to become gloomier as a result of the slowdown in economic momentum and interest rate rises, as with a parallel high level of debt the public sector’s financing scope and thus investment opportunities are limited. Nevertheless, further growth in the construction sector is expected in 2023 in India, Vietnam and the Philippines, among other countries. By contrast, the ongoing crisis in the real estate sector is impacting the construction industry in China. Not only have housing prices been under enormous pressure there recently, but there were also around 40% fewer housing starts in 2022 in terms of area. In this respect, no recovery of the construction industry in China is currently in sight.

By comparison, the situation in the European construction industry paints an even bleaker picture. According to the Euroconstruct industry network (including the Ifo Institute), no growth is expected up to and including 2024. This is mainly due to the far-reaching negative consequences caused by the war in Ukraine, the bottlenecks and enormous cost increases for materials, and the interest rates, which are expected to continue to rise. These are placing a heavy burden on construction demand. In addition, the general economic and investment weakness and shrinking real incomes are having a negative impact on the sector. As a result of these factors, residential construction in particular is being severely impacted, not least because companies are shying away from additional construction investment, and the lack of new buildings is therefore having a negative impact on supply

on the market. This is illustrated by the recently gloomy framework data and declining housing permits (November 2022: -16.3%; 11 months of 2022: -5.7%). They suggest a continuing weak phase for the German construction industry in 2023. According to the Bundesbank, no recovery is expected until after a significant setback. The ifo Institute therefore forecasts that construction investment in 2023 will decline by 3.3% year-on-year in real terms, with residential construction falling even more sharply by 3.9%. In terms of construction volume, the Institute for Economic Research (DIW) is currently forecasting a decline of 1.8% (+4.2% in nominal terms). The downturn in residential construction (-2.2% in real terms) is continuing on a broad basis, with losses both in new construction (-3.4% in real terms) and in construction work on existing buildings (-1.9% in real terms). The DIW also expects declining figures for commercial construction (-0.6% in real terms) and public sector construction (-2.5% in real terms) in 2023.

Although price increases for construction materials and the speed of interest rate hikes by the Fed eased in 2022, the US construction industry is expected to slip into recession in 2023. The economic weakness and the rapid rise in interest rates is expected to have a huge impact on the US construction sector. As a result, the negative trend from the previous year will not only continue but also intensify. In private residential construction, the key data at the turn of the year 2022/23 signals a decline in demand. The number of building permits in the residential sector fell by 5.0% and the number of housing starts by 3.0% within the space of a year. In addition, both indicators fell below the level of completions, indicating a further weakening of construction activity. Against the backdrop of this mixed situation, there are signs of a double-digit decline in building permits and thus a continuation of the negative trend already set in 2022 in most regions of the US. In conjunction with the decline in construction starts for single-family homes, spending on new buildings and building materials is consequently expected to fall overall. According to current forecasts, housing starts in 2023 will decline by 15% compared to the level of the previous year. The Kiel-based IfW also forecasts a decline and expects real construction spending in US residential construction to fall by 11.8% and in commercial construction by 4.9% in 2023. At the same time, spending on renovations and repairs, a key driver of NDS business, is also expected to decline. Based on this outlook, industry experts at JBREC (John Burns Real Estate Consulting) expect the market to decline 8% year-over-year in 2023. For the following year, 2024, they anticipate a milder decline of 1%. By contrast, the industry experts at FMI expect investments in the US water sector to increase by 14% in nominal terms in 2023.


Construction industry: development of European construction output
















These contents are part of the Non-financial Group Report and were subject to a separate limited assurance examination.