China’s economic prospects remain linked to a recovery from coronavirus practices, while major commodity exporters among emerging market economies may see softer growth on weaker prices.
Japan likely bucks this trend due to near zero interest rates by the Bank of Japan and improving consumer spending. High energy costs are hurting consumer spending and cumulative interest rate hikes from the European Central Bank and the Bank of England dampen full-year growth prospects. High energy costs likely hold foreign developed economies in a recession for much of the year, while the Russia/Ukraine conflict remains a key economic swing factor.Softer inflation and an end to Fed rate hikes should stabilize consumer and business spending into year-end. Accumulated Fed interest rate hikes and souring consumer and business sentiment weigh on economic growth as we open 2023. economy is likely to struggle at 2023’s outset due to Fed interest rate hikes, though slower inflation should help a second half recovery. ― Eric Freedman, Chief Investment Officer, U.S. As the economy endures higher borrowing costs, corporate earnings may be challenged relative to current estimates. Businesses may, in turn, anticipate weakening consumer spending and limit expansion plans. Although the labor market remains strong and job openings exceed jobs sought, low labor force participation and diminished savings may thwart consumer spending. Higher interest rates reflect higher borrowing costs that act like a tax to credit-reliant consumers and businesses. Our near-term caution rests within the second change. With persistent interest rate hiking campaigns and relatively consistent central bank communication, we may be mostly through the first stage. When central banks target higher interest rates, newly issued government bonds reflect elevated yields, forcing other assets to reprice lower. The first stage reflects how markets react to interest rate changes, and the second anticipates how the economy adjusts to higher interest rates’ cumulative impact. We have shared a two-staged investment framework to explain current capital market reactions. Central banks face a challenging backdrop, with inflationary pressures remaining above historic levels but economic growth demonstrating slowing conditions, risking central banks increasing borrowing levels into a weakening economy. Federal Reserve (Fed) and other central banks’ policy resolve, with investors weighing how stringent policymakers will be given recent interest rate hiking trends. The year’s first half centers on the U.S. We anticipate a choppy 2023 start giving way to a more favorable investment environment later in the year. Find a financial advisor or wealth specialist.
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