The new year is a time to look ahead, and our Investment Management team are looking forward to the potential opportunities for markets and investors in 2023.
Our latest episode of the Do More With Your Money show was an economic outlook, covering some of the talking points that investors could expect in 2023. Here are some of the key themes for investors.
Inflation
The outlook is for global inflation pressures to cool during 2023, we have started to see this moderation in some regions such as France and Germany and in the US inflation has declined from 9% to 7%.. It may be the case that in 2023 the popular term being discussed is disinflation and not inflation!
How could this affect markets? It would provide central banks with some breathing space in terms of the speed of interest rate increases, but our expectation would still be for interest rates to rise from current levels.
Our view for the UK is that inflation will continue to trend lower in 2023 as demand in the economy falls, the supply chain difficulties post-Covid fade, and energy prices may not rise as they did in 2022.
Jobs
Employment has been more resilient than expected. It remains very robust with unemployment at historic low levels in many countries, which is supporting wage growth. This feeds into inflation, as it increases spending power. This presents a challenge for central banks and why further interest rate rises in 2023 are likely.
The US Federal Reserve expects the US unemployment levels to rise by around 0.9 to 1.0% through the course of 2023, from the current 3.5%.
China’s reopening
The reopening of the Chinese economy in 2023 is underway, with the removal of restrictions related to COVID 19.
There may be two ways to assess the initial reopening. It may be a negative in the short term, given a high covid case count will limit consumption, but as we go through 2023 we might see a growth impulse coming from China into the global economy.
How will economic growth evolve in 2023?
Economic growth is forecast to decline as we move through 2023. Higher borrowing costs and higher interest rates, a deliberate action from central banks to tackle the inflation challenge, will curtail growth. It is worth noting that the slowdown is very evident in developed market economies, emerging economies will provide an important growth support, in particular as China re-opens.
Currently, consumers are generally in a good position, boosted by pandemic savings levels, although these have reduced and low unemployment levels. How this develops will be important.
There is no crystal ball to the future
Forecasting is difficult, you only have to look back at recent history COVID, the Russia Ukriane conflict, the rise of inflation and significant interest rate increases. In addition, geopolitical events can unexpectedly arise and cause economic impacts.
Given the significant correction in fixed income markets in 2022. We are more optimistic on the potential returns from fixed income assets this year and our portfolios have been increasing their allocations for some months now.
That’s why a long-term view is important. What happens in the space of a year, is relevant, but it is also important to keep in mind the long-term goal when you’re invested for potentially decades within a pension.
To see how 2023 does play out in markets, subscribe to the True Potential YouTube Channel for our daily Morning Markets series presented by the True Potential Investment Management team. You’ll also enjoy our weekly Do More With Your Money show, featuring more in-depth discussions on the big investment stories.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.
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