Like every new year, let’s try to put down on paper, just as if they were simple notes, what today appears to be the most probable key themes of 2023.
Inflation, who else
Inflation will accompany us for many more months. This is what the central bank governors keep repeating to us, reckoning that for this very reason, it will be necessary to keep rates above neutrality for some time. Of course, during 2023, everyone expects a reduction in the pace of price growth, both for the most classic of base effects and because the downward trend in the price of raw materials is expected to continue also in the new year. What could go wrong? An extremely harsh winter ending could revive gas prices, and a resurgence of Covid in China could bring new snags on the supply chain front. New geopolitical tensions could have a direct effect on the downward dynamics of prices.
Recession or simple stalemate?
The International Monetary Fund, in its latest economic outlook, estimates the probability of 2023 bringing with it a global recession at 25%. Other analyses, such as the one from CEBR, deem the possibility of a recession just a tad short of a certainty. What is certain is that the rise in interest rates on the one hand, and prices on the other, will certainly not benefit aggregate demand. A drop in consumption and investment can only lead to a reduction in the wealth produced, and it doesn’t matter if the job market still seems flourishing, for this it would be enough to remember that statistically, employment data always respond later than the trend of the economic cycle. Episodes of recession, therefore, seem to be almost certain, at least for the first quarter of 2023. In fact, it will be more interesting to understand their duration and here the situation becomes very uneven. In Great Britain, a drop is expected, which could also be projected in the first months of 2024, in the USA the matter could be faster. For Europe, things seem oriented towards the middle ground, with many unknown factors on the horizon (geopolitical but also financial stability).
Real estate no, gold yes?
If for the more classic assets, shares, and bonds, a forecast at this moment seems too smoky to be taken into consideration, some more significant data is available for the real estate sector and gold. The first suffers greatly from the rise in interest rates, and the drop in prices seen in the second half of 2022 is destined to drag on into the new year as well. Some fear the risk of a bubble, but it is not too possible as the financial stability of households does not appear to be in question at the moment. On the gold front, a retreating dollar and a climate of macroeconomic uncertainty could represent an upward push, as the World Gold Council report recalled a few weeks ago.
Geopolitics, the new great market mover
What happened in the deadly February of 2022 opened everyone’s eyes to a new reality. The world equilibria that have cradled us for decades are no longer so solid, and a completely new period is on the horizon. Geopolitics is perhaps the main one among the key themes of 2023, as well as having become a real market mover given the strong interconnection of the world economy. It is a variable capable of influencing the price trend and the production capacity of entire economic areas. And on the geopolitical front, there will be tensions even in 2023: Ukraine-Russia, China-Taiwan, Serbia-Kosovo, Western Iran, and North Korea, just to mention the heaviest.
Featured image: By Moritz Knöringer from Unsplash. Retrieved from https://unsplash.com/photos/rrw0MtEqQoU