The same main themes that applied in 2022 will again dominate in 2023. Those key themes revolve around the outlook for inflation, interest rates and growth. These are common every year but are particularly of concern at present.
Central banks have reversed their growth-enhancing policies. Interest rates rose significantly in 2022 and negatively impacted share prices. We believe interest rates will have a significant bearing on future returns. Will interest rates rise further this year? It is widely acknowledged that earlier interest rate rises have a delayed impact on the economy. Exactly how long the delay is and how deep the impact is varies depending on the area of the economy, e.g. mortgages, borrowing, business investment, consumer spending etc. There is still a lot of uncertainty about how labour shortages will affect the outcome. The fear is that labour shortages will result in wage growth, leading to higher inflation. These and other factors should determine how fast inflation numbers come down. Any geo-political developments could also surprise.
The World Bank has revised its 2023 economic forecasts. It was, in January 2023, expecting global economic growth of just 1.7% this year. If its predictions are accurate, that will put economic growth in 2023 at its third lowest level in the past three decades, behind 2009 (Global Financial Crisis) and 2020 (COVID-19).
There is little doubt, though, that whatever eventuates, the markets could fluctuate wildly at times. Rest assured, as we have mentioned previously, we are doing our best in these times of heightened uncertainty to look after our members’ interests. The portfolios remain diverse, and we focus on investments that we believe are more at the quality end of the spectrum.