Economic and Investment Outlook Summary - 2023

At the start of each year, our investment team put aside time to read the investment outlooks from all the major banks and investment houses.

Historically, these outlooks and forecasts rarely accurately predict the major events and subsequent investment performance of the coming year. For example, none of the 2020 outlooks contained a global pandemic as a potential risk and, similarly, there were no predictions of Russia’s invasion of Ukraine going into 2022.

No one can predict the future and it would be unfair to have that expectation even considering the intelligence and resources within these firms. However, considering how many investment decisions are linked to these outlooks, they do provide some guidance on investors’ expectations, their positioning, and a sense of how events could play out over the next 12 months.

This year, we decided to share a summary of these outlooks which can be found below. 

Outlook Summary for 2023

Economic Data

Though interest rates are likely to move higher from their current levels, the expectation is that we are nearing the peak. Whilst inflation is anticipated to remain above the widely accepted central bank target of 2%, it is projected to come down from the very high levels we saw during 2022. The outlook for growth is relatively muted and this is not a surprise given the change in interest rates. However, there is still possibility that growth could be better than expected, given the resilience of the data in some of the latest readings.

Equities

In general, the outlook is mixed for global equities however, they are expected to remain volatile throughout 2023. European equities are favoured over the US with some outlooks sighting potential opportunities in the UK and Japan as well as favourable conditions for emerging markets. Any pause or reduction in interest rates would act as a positive catalyst and drive markets higher from current levels.

Fixed Income

Following a disappointing year, fixed-income assets now look far more attractive both from an income and diversification perspective. There is a preference for longer duration and higher quality fixed income assets (such as government bonds) with the feeling that lower credit quality bonds are more susceptible to potential economic weakness which is not currently being priced in.

Property

The outlook for residential property has become more challenged as higher interest rates have increased the cost of borrowing. This is likely to cool demand in this sector and will potentially lead to some price declines. Commercial property faces the same challenges due to higher borrowing costs but specific property types (logistics, warehouses, and data centres) continue to attract demand and are expected to remain robust.

Base Case

The consensus is for most major developed economies to enter mild recessions this year however, there is little consistency in the timing. The expectation is that economic weakness will lead to rate cuts from central banks and so the second half of 2023 and into 2024 will likely be more positive from an economic growth and investment market perspective.

Summary

As we sit here early in the year, the above expectations feel about right however, this could change depending on what might happen along the way. We will aim to review this summary when we complete a similar exercise this time next year.

Written by Artem Dubas and Jonty Brooks

General Disclosures: This article is based on current public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.