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The International Monetary Fund (IMF) has predicted a challenging 2023, reducing growth expectations and forecasting economic contraction in a third of the world, in its latest World Economic Outlook entitled ‘Countering the Cost-of-Living Crisis.’

With the cost-of-living crisis ‘tightening financial conditions in most regions’, the outlook suggests that in order to restore price stability, monetary policy should stay the course and fiscal policy should aim to alleviate pressures ‘while maintaining a sufficiently tight stance.’

The global growth rate for 2022 is estimated to be 3.2%, the 2023 estimate has been revised down from previous expectations to 2.7%. This reflects ‘significant slowdowns’ for the largest economies as America’s gross domestic product (GDP) contracted in the first half of 2022, followed by the Euro Area’s contraction in the second half of 2022, and prolonged COVID-19 outbreaks and lockdowns in China.

The Organisation for Economic Cooperation and Development (OECD) believes the slowdown is the result of a combination of factors, noting – tighter monetary policy, persistently high energy prices, weak real household income growth and declining confidence – all weighing on growth. Referencing the war in Ukraine, OECD highlighted how higher energy prices have helped trigger an increase in prices across a broad basket of goods and services. The intergovernmental body forecasts average inflation across the OECD area to be 6.6% in 2023.


Projected growth for the Euro Area is 3.1% in 2022 and 0.5% in 2023. Weak growth across Europe reflects effects from the war, with sharp downward revisions for economies most exposed to gas supply cuts. The European Central Bank (ECB) opted for a smaller rate rise in December, taking its key rate from 1.5% to 2%. The ECB said it would need to raise rates ‘significantly’ further in order to temper inflation. From March 2023 the ECB expect to begin reducing its balance sheet by €15bn per month on average until the end of Q2 2023. The central bank said it expects inflation to remain above its 2% target until 2025, with average inflation of 8.4% in 2022, 6.3% in 2023 and 3.4% in 2024. The ECB expects recession in the region to be ‘relatively short-lived and shallow.’


FocusEconomics estimate the Swiss economy to expand by 0.8% in 2023, down 0.2 percentage points from previous expectations, and 1.7% in 2024. Repercussions from the Ukraine invasion have weakened foreign demand, with trade and investment also slowing. High energy prices and wages are expected to keep headline inflation above the Swiss National Bank’s target range in 2023. Headline inflation reached 3% in October, the highest rate in fourteen years, driven by energy prices and imported goods. Amid weakening growth momentum, the KOF Economic Barometer remains subdued as manufacturing PMI declines. The labour market is tight, with low unemployment and a high number of job vacancies.


The IMF predicts growth of 3.6% in 2022 and 0.3% in 2023 for the UK. The Office for National Statistics (ONS) latest data shows the Consumer Prices Index (CPI) rose by 10.7% in the 12 months to November 2022, down from 11.1% in October. The easing in the annual inflation rate in November reflected price changes in motor fuels and second-hand cars. There were also downward effects from tobacco, accommodation services, clothing and footwear, and games, toys and hobbies. The Bank of England (BoE) expect inflation to fall sharply from the middle of 2023. Bank Rate was raised in December, from 3% to 3.5%, the ninth consecutive hike since December 2021. BoE Governor Andrew Bailey said there were signs inflation was now beginning to ease from its 41-year high, but that the Bank still needed to raise rates to offset pressures from a tight labour market, “We’ve seen possibly this week, the first glimmer that (inflation) is not only beginning to come down, but it was a little bit below where we thought it would be. That’s obviously very good news. But there’s a long way to go.”

Following new Chancellor Jeremy Hunt’s reversal of most of the mini-Budget measures, a level of stability resumed. Challenges with household finances were somewhat supported by one measure retained from the mini-Budget – the Energy Price Guarantee. The Autumn Statement in November brought a swathe of announcements set to pull more people into paying higher rates of tax, more estates paying Inheritance Tax (IHT), a cut to tax-free earnings from dividends and a reduction in Capital Gains Tax (CGT) allowances. As the year closes amid widespread industrial action, Prime Minister Rishi Sunak faces a multitude of challenges into the new year, including winning electoral favour for his party.

Global real estate company CBRE, expect a moderate UK recession throughout 2023, adding, ‘The economy appears sufficiently healthy to avoid long-term scarring, such as reduced business investment, high long-run unemployment, and permanent decline in key sectors. As inflation reduces and the Bank decreases interest rates, consumers’ incomes will restore their purchasing power. Spending will increase, ushering growth in output in early 2024, with strong recovery underway by the second half of 2024.’


In mid-December the Federal Reserve raised its benchmark interest rate to the highest level in 15 years. The Federal Open Market Committee unanimously voted to increase the overnight borrowing rate half a percentage point, taking it to a targeted range between 4.25% and 4.5%. Officials expect to keep rates higher through 2023, with no reductions expected until 2024. The Consumer Price Index rose just 0.1% in November, a smaller increase than expected as the 12-month rate dropped to 7.1%. Fed Chair Jerome Powell said the recent news was welcome but he still sees services inflation as too high, adding, “There’s an expectation really that the services inflation will not move down so quickly, so we’ll have to stay at it… We may have to raise rates higher to get where we want to go.” Price pressures are expected to recede as energy prices stabilise and demand slows. The OECD projects growth of 1.8% in 2022, 0.5% in 2023 and 1% in 2024.

Asia and Emerging Market Equities

The IMF expects economic growth in Emerging Markets and Developing Economies of 3.7% in 2022 and 3.7% in 2023. For China, the OECD expects economic growth to slow to 3.3% in 2022 and rebound to 4.6% in 2023. COVID-19 outbreaks and lockdowns, as well as the worsening property market crisis, have dampened economic activity in China. Easing geopolitical tensions between the US and China after a meeting of their Presidents in November, provided some support for Asian equity markets. Emerging markets have recently recorded a strong outperformance over developed markets. The first boost came from positive US inflation data and the second from the easing of China’s ‘zero-COVID’ policies.


Brent crude is currently trading at around $79 a barrel. Downside price pressures are present, with recent interest rate hikes from major central banks halting upward momentum. Crude demand is expected to be impacted as monetary tightening and its impact on economic growth in the new year, take hold. Gold is currently trading at around $1,780 a troy ounce. The price waivered after the Federal Reserve increased interest rates and continue their hawkish stance in the fight against inflation.

Looking ahead

As 2023 dawns, we enter the new year under the spectre of potential recessions in developed markets, with high inflation and interest rates continuing to place downward pressure on growth. Predictions can be troublesome – after all, at the turn of 2022, who would have called double-digit inflation in the West, the most aggressive US monetary policy tightening for four decades and war in Europe? What we do know though is that providing our clients with a sound strategy and a financial plan able to flex with changing needs, which is positioned for the long-term and broadly diversified across a range of global assets, will help bring resilience in different market conditions. It’s important to remember that market volatility is normal, and history shows that those who are patient and stick to their plans are more likely to achieve their financial objectives. It’s vital to continue taking a long-term view in order to negate the risk of impulsive short-term decision making, and to seek expert financial advice. Please do not hesitate to get in touch with any questions or concerns you may have.

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