Stock market, exchange rates… “2023 will be the year of all dangers”… and opportunities?
First of all, my team and I would like to thank you for your loyalty and wish you a happy, healthy and successful 2023! A year that promises to be one of all danger and upheaval. Also, to better address these risks, we need to answer eight key questions that will shape 2023 economically and financially:
1. How deep will the recession be? After a sharp decline in the fourth quarter of 2022, the GDP of many countries on the planet should register a further decline in the first quarter of 2023, confirming the return of recession worldwide. With the correction effect of past weakness, the rest of the year should see a slight gradual improvement. Thus, on an annual average, global GDP growth should reach 1% in 2023, i.e. excluding 2020 (with an exceptional decline of 3.1%), its worst performance since 2009 (-0.1 %), then the lowest indicator. Since 1982 (+0.5%). In other words, barring the unfortunate episode of the 2020 pandemic, 2023 promises to be the third worst year for the world economy since 1980.
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It will be the same for the entire Eurozone, with growth around 0%, France (+0.2%), Germany (-0.1%) and even the United States (+1%) for the United States. Even China’s economy will suffer, as its GDP will only grow by 3.5% at best, which will not be enough to allow the Middle Kingdom to significantly increase the purchasing power of its residents, thus creating a huge social risk. As already observed last year, the big economic winner of 2023 should be India, which should show one of the best performances in the world with at least 4.5% after registering 7.9% growth in 2022.
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2. Will inflation remain high? After a temporary lull in November and December, it might be tempting to imagine that inflation peaked in October and is now about to collapse. Unfortunately, it won’t happen. Indeed, this decrease is temporary. And this is for at least four reasons. First, it corresponds to the correction effect of previous months’ growth, so by definition it cannot be carried over to future months. In particular, secondly, the prices of raw materials, especially oil and food raw materials, have stopped falling and sometimes start to rise again. Third, since cost-of-production rates are often negotiated on an annual basis, they do not yet include the 2022 increases and will do so only from the first quarter of 2023. Quattro, repeated blockades of the Chinese economy are bound to exacerbate intermediate product shortages. goods and components that will intensify international inflationary pressures.
In this context, price growth is likely to deteriorate sharply in early 2023 for producers and then for consumers. Therefore, by next spring, the annual change in consumer prices could be around 11% for the euro area as a whole, and 9% in France.
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3. When will the peak of inflation be reached? This is one of the basic rules of economics: price formation is mainly explained by production costs, the profits of producers and distributors, and then the conflict between supply and demand. So, although it is still often forgotten, it is important to remember that the first inflationary stress of 2021 was caused by an artificial and excessive increase in demand (due to the explosion of government debts and their financing by “money printing”). central banks), so it was well above supply. On the contrary, here too, we often forget that the exit from the period of high inflation always goes through the “recession” box. In other words, the decrease in inflation will be caused by the decrease in demand, which will gradually fall below the supply. And this until the middle of 2023. But beware, inflation will still remain high and stabilize around 4% in both France and the eurozone as a whole and the US.
4. Will money market interest rates rise further? Within this “quiet” but still dangerous inflation framework, central banks should continue monetary tightening only until spring 2023. This will result in a target rate at the highest level. federal funds 5.25% and the ECB’s repayment rate is 3.50%.
5. Will the national debt still break records? The answer is unfortunately clear and positive, especially for France, which will easily pass 3.2 trillion euros of public debt by the end of 2023.
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6. Will the bond crash continue? Despite the recession and apparently slow but still strong inflation, as well as a new increase in public debt, interest rates on government bonds are expected to tighten further in 2023, to exceed 4.5% in the US, for example. 4% in France, 5.5% in Southern European countries.
7. Will the stock market fall further? In terms of growth, inflation and monetary interest rates, 2023 will also be “cut in half” for equity markets, with a sharp decline in the first half and a rebound in the second, awaiting the expected improvement. .
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8. Will the euro fall again against the dollar? After falling to its lowest levels since 2002 in the autumn of 2022, the euro, which rebounded later in the year, should begin to depreciate again by next summer amid the EMU’s long-term recession and more significant political risks at home. euro zone. In conclusion, 2023 will be the year of all upheavals while we look forward to better days in 2024…
Marc Touati, economist, president of the ACDEFI firm, author of 8 economic bestsellers, including “RESET II – Welcome to the Next World”, leading sales of economic essays on Amazon as of September 1, 2022
You can also find his video chronicles his Youtube channel the last one:
Outlook 2023: fasten your seat belts!