Outlook 2023 – Update Q4
by
Felix Ronner
The global economy is facing a multitude of challenges affecting various aspects of the structural environment, economic development and the market environment. The market outlook for the 4th quarter analyses the most important factors and trends currently influencing the global economy.
Supply shortages persist
The high level of debt in many countries is a major problem that, together with an ageing population and low productivity progress, signals low long-term growth. In this context, there is an increasing trend towards the renationalisation of social and economic policy, with greater attention being paid to domestic distribution effects. This trend is reflected in political shifts and growing polarisation. The COVID-19 pandemic has led to supply shortages, especially in the labour market. These shortages will be slow to ease and have implications for economic recovery. In addition to the impact of the pandemic, geopolitical tensions are exacerbating the global situation, especially with the war in Ukraine and Russia’s behaviour. These tensions could also lead to de-dollarisation and a possible decoupling from the West.
Slow recovery looking ahead to 2024
The global economy remains characterised by high macroeconomic volatility and persistently high nominal growth compared to the previous decade. Despite this volatility, a recession in the US seems unlikely. In terms of inflation and monetary policy, inflation rates in the US and Europe are expected to fall significantly in the coming quarters, while the decline in core inflation is likely to occur at a slower pace. There are indications that central banks, including the US Federal Reserve and the European Central Bank, have already completed their cycle of interest rate increases. In the long run, state-led investment is expected to play an increasingly important role in supporting economic growth, which could be a key driver of future economic development.
Factors influencing the markets
Geopolitical risks are increasing worldwide, manifesting themselves in various conflict hotspots such as Ukraine, Iran, Taiwan and Turkey. These risks have intensified and are expected to persist, further driving the trend towards deglobalisation. In terms of fiscal policy, many countries are expected to maintain an expansionary stance and austerity policies are more the exception, with Germany being a notable exception with its noticeable fiscal tightening. Financial repression is expected to play a significant role in financial markets in the coming years and have an impact on investment returns. Political risks are also increasing, especially due to the rise of anti-EU/Euro parties in Europe and protectionist measures by the US government. Global risks remain high with the possibility of negative scenarios in the long term. Another global trade war, especially between the US and China, could have a significant and lasting impact on global economic growth and financial markets – a development trajectory that should be closely monitored.
Market environment and trends
The stock market remains volatile but shows a positive long-term trend, mainly due to monetary tightening and the associated attractive valuations. The trend towards sustainable investments and “green finance” is gaining importance in all asset classes, reflecting the growing interest in environmentally friendly investment strategies. With regard to bonds, yields on safe bonds such as German government bonds and US Treasuries are expected to rise slightly in the coming years, while spread products will remain attractive for fixed income investors. In the commodities market, base metals could face temporary challenges, while precious metals have a favourable valuation in the long term. This reflects the various dynamics in the commodity markets and offers investors a wide range of opportunities.
You can download the comprehensive market outlook 2023 with Q4 update here.