Quarterly Review: Q3, 2023

Activity in advanced economies has generally weakened over the third quarter given the drag from high interest rates. Recessions have not yet taken hold in DMs, but that’s most likely because of temporary factors. These include households running down the savings accrued thanks to supportive fiscal policy during the pandemic, and producers working off the backlog of orders.

This is unlikely to last, especially as the impact from tight monetary policy continues to pass through. Indeed, financial conditions have tightened dramatically and credit growth and lending have generally softened significantly. And activity and survey data for October, including the PMIs, suggest that global industrial activity contracted at the beginning of Q4, with forward-looking indicators pointing to further weakness ahead.