While 2022 was a story of transitions – 2023 will be a story of outcomes. High interest rates and high inflation will result in a global economy moving at multi-speeds: a contraction in European growth, limited economic growth in North and South America, a stabilization of growth rates in the Middle East, and resilience in emerging Asia. How governments respond to these differing scenarios will vary across the world.

The global economy is navigating a cost-of-living crisis stemming largely from high inflation in energy and essential goods, with higher interest rates now increasing costs for borrowers. In most developed economies, inflation is near multi-decade highs, while the labor market is historically tight. Emerging markets have a more nuanced picture, with inflation and interest rates high, but not so out of the ordinary.

In their latest report, “Economic Outlook 2023”, the Mastercard Economics Institute expects to see a multi-speed global economy defined by uneven outcomes, where some countries, companies, and individuals are more exposed to the headwinds from high inflation and interest rates than others. The analysis draws on a multitude of public and proprietary data sets, including aggregated and anonymized Mastercard switched volumes, as well as models intended to estimate economic activity.

The four key themes that will continue to shape global economic environment include:

High rates and housing

After years of a housing boom, higher interest rates are expected to squeeze budgets, shifting the way consumers spend broadly.In major developed countries, housing-related spending as a share of goods is expected to fall an estimated 4.5%[1] over the course of 2023, below pre-pandemic levels. With less desire or ability to spend on the home, consumers could allocate more of their budget toward other types of spending. 

The adjustment in the housing market and related spending also has a broader impact on the health of the economy. A decline in home sales means fewer job opportunities for the housing sector, such as construction workers, realtors, and mortgage brokers.

Trading down and shopping around

Broad spending should remain resilient in the face of inflation, with consumers choosing wallet-friendly brands and chasing the best value.The inflation story underpinning this trend varies by market.

Consumers in Australia, Canada, and the U.S., for example, have weathered the macro headwinds better than the rest of the world, likely boosted by a greater willingness to access excess savings, a tight labor market, and a stronger recovery in credit spending.

Prices and preferences

As food and energy costs eat up a greater share of the consumer budget, lower-income households will feel an especially strong pinch in the year ahead.From 2019 to 2022, discretionary spending – on apparel, jewelry, furniture, and electronics, for example – by high-income households grew nearly 2 times as fast as that of lower-income households. High inflation is disproportionately impacting lower-income households.

Today, the resulting differences in discretionary spending between high and low-income households remain wide. Although the Economics Institute expects inflation pressure to ease in 2023, price levels will broadly remain higher relative to where they were before the pandemic.

Shocks and omnichannel

Companies, like households, feel pressure from high inflation and rising interest rates. Their costs are rising, margins are squeezed, and access to affordable finance is getting more difficult. The lessons learned from the last three years underscore how a robust omnichannel presence can reduce business risk.

Private sector businesses with an omnichannel presence are likelier to withstand shocks by meeting the customer where they want to shop.Maintaining both an in-store and online presence has helped private sector firms build resilience, connect with more customers, broaden brand awareness, diversify product offerings, and provide more flexible and targeted pricing structures.

Insights for governments

While this is a clearer picture than what we have faced in recent years, the global economy is rarely without unexpected refractions. As governments across the world face a storm of public sector challenges, exacerbated by inflationary pressures and a cost-of-living crisis, they must keep an eye on citizen spending, leveraging data insights to inform and shape policies and programs supporting sustainable, inclusive growth.

Read the full report “Economic Outlook 2023” from the Mastercard Economics Institute here: https://www.mastercardservices.com/en/reports-insights/economics-institute/consumer-lens-multi-speed-economy-report

About the Mastercard Economics Institute

Mastercard Economics Institute launched in 2020 to analyze macroeconomic trends through the lens of the consumer. A team of economists, analysts and data scientists draws on Mastercard insights – including Mastercard SpendingPulse™ – and third-party data to deliver regular reporting on economic issues for key customers, partners and policymakers.


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[1] Mastercard Economics Institute estimates. Based on an analysis of aggregated & anonymized Mastercard switched volumes and third party sources (nominal US dollars unadjusted for FX) and national accounts data from various national statistics agencies.