Credit Suisse’s forecast for 2023: none of the central banks will lower interest rates. And what will happen in the markets?

Credit Suisse’s forecast for 2023: none of the central banks will lower interest rates. And what will happen in the markets?
Credit Suisse’s forecast for 2023: none of the central banks will lower interest rates. And what will happen in the markets?

According to Credit Suisse’s investment forecast for 2023 published today, in the coming year global economic growth will be low and will reach only 1.6%.

“Although central banks will likely slow or end monetary policy tightening in 2023, we do not foresee interest rate cuts in any of the major economies. Against this background, fixed income bond assets can offer investors attractive opportunities. We expect that the performance of the shares will be weak, at least in the first half of the year,” according to the bank’s economists.

After the challenging year of 2022, in which we saw persistently high inflation, aggressive tightening by central banks and slowing growth, Credit Suisse predicts that next year we will see a recession in the Eurozone and the United Kingdom, and a slowdown in China’s growth rate. “These economies are expected to bottom out in mid-2023 and begin a weak and hesitant recovery – a scenario that rests on the crucial assumption that the US will manage to avoid a recession. We expect economic growth to remain generally low in 2023 against the backdrop of tight monetary conditions and ongoing changes in the geopolitical situation,” according to the bank’s economists.

Credit Suisse Global Chief Investment Officer Michael Strubak says: “We expect financial market volatility to remain high as risks persist and as global financial conditions remain tight. This may create a continuing headwind for growth, and therefore for risk assets. The key to managing investments in this difficult environment is adherence to solid investment principles, a strict investment process adapted to the long-term financial goals of the investors and a broad diversification that includes alternative investments.”

The forecast for major economies and currencies

USA – Growth of 0.8% on average in 2023. The probability of a recession is high (over 40%), but it is still not the base case. Inflation is starting to moderate, but inflation in core private consumption expenditures (PCE) is expected to remain high, around 3% at the end of 2023. Therefore, we at the bank expect the Fed to continue aggressive tightening until a final interest rate of 4.75%-5%.

The Eurozone – Credit Suisse believes the Eurozone will remain in recession until the end of the second quarter of 2023, with growth of 0.2% in 2023 in full. Overall inflation may peak, but is expected to decline only gradually. It is also expected that the continuation of inflation and the weakness of the currency will push the European Central Bank to raise the interest rate aggressively up to a final rate of 3% at the beginning of 2023.

china – Growth is expected below the consensus of 4.5% in 2023. A decline in growth potential, fiscal consolidation and a slow transition from the government’s ‘zero corona’ policy may limit the economy. The expectation of the bank’s economists is that significant progress in reopening will occur only towards the end of the first quarter of 2023.

Japan – Japan’s economy is expected to see low growth of 0.5% in 2023. Inflation is expected to remain above 2% in the first half of 2023. In their view, this, in addition to downward pressure on the yen (JPY) following the US Federal Reserve’s hawkishness, will lead the central bank of Japan to adjust its policy to control the yield curve in early 2023 to allow yields to rise slightly.

The forecast for the main asset types

Stocks are expected to underperform in the first half of 2023 as the focus continues to be on “higher interest rates for longer”. Sectors and regions with stable earnings, low leverage and pricing power are expected to outperform in this environment. Once the central banks approach the pivot point, interest rate sensitive sectors with a bias towards growth may become more attractive again.

Inflation is expected to normalize in 2023, at which point bond assets should be more attractive to hold and once again offer benefits of portfolio diversification. Strategies based on the deepening of the US yield curve, ‘long’ on US government bonds versus the Eurozone, bonds Interest in emerging market hard currencies, investment grade credit and crossovers could offer interesting opportunities in 2023.

In early 2023, demand for cyclical goods may be soft, while increased pressure in energy markets should help accelerate the process of energy transitions in Europe. The background landscape in relation to gold is expected to improve in our view as the normalization of monetary policy nears its end.

In the area of ​​alternative investments, we expect the real estate environment to become more challenging in 2023 amid the headwinds of rising interest rates and weakening economic growth. Moreover, active management will offer opportunities to add more value, especially for secondary asset managers, private alternative yield assets and low-beta hedge fund strategies.

The article is Hebrew

Tags: Credit Suisses forecast central banks interest rates happen markets

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