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US will enter recessionary conditions in the first half of 2023 following the UK and Europe and the global equity markets may decline, predicts Macquarie. It advises investors to remain cautious towards equities as there could be headwinds due to weak corporate earnings.  

As supply chain pressures ease and aggregate demand weakens, inflation is likely to moderate during 2023 but also remain above central banks' targets of ~2%, said Macquarie Asset Management in its latest report ‘Outlook 2023’.

The report anticipated that even though the UK would be able to sustain the energy crisis, which emerged due to the Russia-Ukraine war this winter season, by relying on liquified natural gas imports and diversifying its fuel sources, real challenges will be in 2023. That’s why the coming year will witness a faster transition to a low-carbon energy system.

The asset management firm has also predicted that energy security will remain a dominant theme next year.

“The global economy recovered strongly from the COVID-19 pandemic, supported by the release of pent-up demand as movement restrictions were scaled back, as well as huge amounts of fiscal and monetary support. But it is now being buffeted by two major shocks: high inflation (which is eroding real incomes) and rising interest rates," the report said.

China’s economy expected to accelerate in 2023

As the harsh COVID lockdowns took a toll on the Chinese economy, the dragon is expected to miss its growth target of 5.5% this year for the first time since 2015. 

Macquarie expects the Chinese authorities to ease its monetary policy, going ahead. This could include a cut in the 5-year loan prime rate, reduction in banks’ reserve requirement ratio, increase in the special bond quota for local governments and reduction in the mortgage down-payment ratio. 

After the easing of harsh Covid restrictions and some monetary easing steps, the Chinese growth could support the global economy which may be under pressure due to likely recessionary trends in early 2023.

Short-lived downturn

“While we believe that the odds of recessions are high enough to have them as our base case, we also expect the downturns to be relatively mild, not just by recent historical standards but even by long-run standards. We also expect that they will be relatively short-lived," the report added.

 

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