In 2023, investors might have to brace for another turbulent year in the financial markets. As China reopens its economy after Covid-19 restrictions, the Ukraine war pushes the global economy towards recession and central banks fight inflation, the first half of 2023 is likely to be fairly choppy. Kavan Choksi points out that the market is, however, expected to end 2023 a bit higher than it began the year.
Kavan Choksi discusses a few Global economic forecasts for 2023
According to economists, the US Federal Reserve shall slow down its interest rate hikes in 2023 as the outlook of the United States economy sours. Inflation in the country dropped back from its peak last summer, and a series of Fed rate hikes in 2022 has been helpful in cooling down the housing market. It is believed that a span of sub-trend growth is inevitable. The recession risks, however, are high as the lagged implications of tighter monetary policy work their way through the economy. Moreover, the fact that the three big economies – the US, EU and China – are all slowing down simultaneously- would have a huge impact on the market. While the decision of China to relax its Covid-19 restrictions may ease global supply chain tensions, it can also lead to higher demand for energy and commodities, adding to inflation pressures.
As two consecutive falls are “very rare”, the US stock market is likely to make gains during 2023 according to certain experts. In certain ways, stock markets are all about whether the things are getting better or are things getting worse, and 2023 is expected to be a bit better than 2022. Even if there are not many big gains as such, this year can be somewhat positive. Major stock markets may plunge 25% from levels somewhat above the current rates if the US recession hits, but then recovery is also expected by year-end 2023, assuming the recession lasts just a few quarters. There are strategists who think that a recession is likely in 2023 and equity markets might struggle, but they also remain hopeful a global economic recovery would be on the horizon by year-end.
A global downturn might prompt central banks to reverse a few of the hefty interest rate rises that were implemented in the last year. It is likely that central banks might ease monetary policy early in the second half of 2023. Moreover, if a recession is the result of the immense monetary tightening, it at least would sow the seeds for a substantial retracement of inflation as a silver lining.
Kavan Choksi points out that while many analysts do predict a global recession for 2023, Asia has a chance of avoiding an outright downturn. This region may benefit from a resurgence of tourism, as Chinese tourists are expected to gradually return to travel. As global economic conditions continue to deteriorate and market conditions tighten, Asia might be less impacted than most. In past socks of the Great Financial Crisis and dotcom bust, Asia bounced back relatively fast, and is expected to do the same in 2023.