As 2023 continues, the global economy faces a critical juncture. This includes the legacy of COVID-19, a war in Europe, a huge energy shock, significant inflation, a global monetary tightening cycle, a strong U.S. dollar, the slowest growth in recent history for China, global indebtedness and increasing tensions between the U.S. and China, to name a few. This is to say nothing of the turmoil playing out in financial markets as the decades-long negative correlation between bonds and stocks has broken down, causing both to decline simultaneously. We analyze 10 trends we expect in 2023 as policymakers do their best to navigate this economic, geopolitical and regulatory polycrisis. A few key trends are highlighted below.
2023 Outlook Featured Content
Developed Markets in Recession
Given the ongoing robustness of the U.S. economy and labor market and the significant cash buffer among households and corporates in the U.S., we expect the recession to hit in the second half of 2023. The European Central Bank (ECB) and the Bank of England have tightened the monetary policy, but less aggressively than the Fed. We expect peak policy rates in 2023 of 2.5% for the ECB and 4.5% for the Bank of England.
Emerging Markets: Buoying Global Growth
While developed markets will enter recession in 2023, we expect emerging markets to continue to grow, buoying lackluster overall global growth of around 2%.
Developing Global Trade Tensions
The West, and in particular the U.S., has a very complicated economic and national security relationship with China after years of trade tensions, and now the war in Ukraine. Right now, there is a cold war over future technologies, with very real economic casualties on both sides.
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