Macroeconomic Review 2022 by Aenaon
As 2022 comes to a close, the global market and economy still face a series of unresolved issues, including global inflation, U.S. Federal Reserve interest rate hikes, and recession fears. In addition, macroeconomic and geopolitical factors, such as the Russia-Ukraine war and COVID-19, continue to impact markets. In terms of global economic growth, 2022 was a volatile year, with the global economy experiencing multiple adverse shocks.
As we move into 2023, the drag of tighter monetary policy is expected to continue, with central banks in many countries raising interest rates. J.P. Morgan’s market outlook for 2023 predicts global GDP growth of 1.6%, with developed market growth at 0.8%, U.S. growth at 1%, and Euro Area growth at 0.2%. China’s economy is forecast to grow 4.0%, while emerging market growth is expected to be 2.9%. However, global consumer price index (CPI) inflation is predicted to slow to 3.5% in early 2023 after rising toward 10% in the second half of 2022.
The stock market outlook for 2023 is uncertain, with the potential for a mild recession and a shrinking labor market, as well as an increase in the unemployment rate to around 5%. However, the market has proven to be resilient in the face of macroeconomic and geopolitical shocks, and the constructive growth seen in 2022 is not expected to persist in 2023. Instead, fundamentals are likely to deteriorate as financial conditions tighten and monetary policy becomes more restrictive.
The U.S. dollar is expected to weaken, with a forecasted decline in the U.S. Dollar Index of around 3%. On the flip side, if the Euro suffered in 2022 from the ECB lagging the Fed in terms of rate hikes, 2023 could see the situation reversed, with the ECB “catching up” to the Fed, which, for its part, has already clearly signaled a pivot towards a less aggressive rate hike. Thus, market expectations of the Fed-ECB rate differential will be key for Single currency in 2023. Specifically, next year’s central question in this regard will be whether the Fed or the ECB will be the first to lower rates again.
Overall, the outlook for the global market and economy in 2023 is uncertain, with a range of potential scenarios, including the possibility of a U.S. recession before the end of 2024. The timing, path of Fed policy, and impact on the rest of the world will depend on a variety of factors.