New year 2023, new economic change

• Key economic indicators to watch in 2023 include GDP, unemployment rates, consumer spending, and inflation.

• A mild recession is expected, due to strong labor markets and well-capitalized financial institutions.

• Governments and central banks are taking steps to mitigate the impact of the recession and stimulate economic growth.

Key Economic Markers to Watch in 2023

As we enter the new year, it will be crucial to pay close attention to key economic indicators in order to get a sense of the state of the economy. By studying a range of markers such as GDP, unemployment rates, consumer spending, and inflation, economists and analysts can better understand the trends and forces driving the economy and make informed predictions about its future.

GDP, or Gross Domestic Product, is a measure of the total value of goods and services produced within a country. It is considered a key indicator of a country's economic health and is often used as a benchmark for comparing the economic performance of different countries. GDP is typically reported on a quarterly basis and is adjusted for inflation in order to account for changes in the cost of living.

Unemployment rates, or the percentage of the labor force that is actively seeking work but unable to find it, are another key economic indicator to watch. High unemployment rates can signal economic recession or stagnation, while low unemployment rates can indicate a strong and growing economy. It's important to note that unemployment rates can be affected by a variety of factors, including changes in the business cycle, technological advances, and shifts in demographics.

Consumer spending, or the amount of money that households and businesses spend on goods and services, is another key indicator to monitor. Consumer spending accounts for a large portion of economic activity and can be influenced by a variety of factors such as income, employment, and confidence in the economy. When consumers feel confident about the future, they are more likely to spend money, which can drive economic growth.

Inflation, or the sustained increase in the general price level of goods and services in an economy, is another important marker to watch. Inflation can be caused by a variety of factors such as rising energy prices, increased demand for goods and services, and monetary policies. If inflation is too high, it can lead to a reduction in purchasing power and can have negative effects on the economy. On the other hand, low or even negative inflation can indicate weak demand and a lack of economic growth.

By closely tracking these and other economic markers, economists and analysts can gain a better understanding of the underlying trends and forces shaping the economy. This can help them to make more informed predictions about the direction of the economy and to advise businesses, investors, and policymakers on the best course of action. As we move into the new year, it will be important to stay up-to-date on these indicators in order to make informed decisions and navigate the challenges and opportunities of the coming year."

Expected Mild Recession

A recession is a period of economic downturn that is characterized by declining gross domestic product (GDP), increasing unemployment, and declining business activity. Recessions are often accompanied by a decrease in consumer spending, which can lead to a decrease in demand for goods and services, further exacerbating economic conditions.

While it appears that a recession in major developed economies is inevitable, the length and depth of the recession is expected to be mild. This is due in part to the fact that labor markets in developed economies are currently in good shape, with a high number of job openings and relatively low unemployment rates. This suggests that the recession is not likely to result in a significant increase in unemployment or a significant decline in wages.

Additionally, financial institutions are well capitalized and are not likely to experience the kind of liquidity crunch that we saw during the 2008 financial crisis. This is because they have taken steps to strengthen their balance sheets and increase their capital ratios in the years since the last financial crisis. Governments around the world are also working to shield the most vulnerable from the surge in energy costs and other economic challenges, and there are still plenty of pandemic household savings to cushion the blow of the cost-of-living crisis. All of these factors contribute to the expectation that the upcoming recession will be mild in comparison to past economic downturns.

Impact of Rising Interest Rates

One potential consequence of the rising interest rates is a decline in housing prices. Higher interest rates make it more expensive for people to borrow money to buy homes, which can lead to a decrease in demand for housing. This, in turn, could lead to a slowdown in the housing market and a decline in home values.

Additionally, rising interest rates may lead to reduced borrowing by households. With higher interest rates, consumers may be less likely to take out loans or credit card debt, as the cost of borrowing becomes more expensive. This could lead to a reduction in consumer spending, which could have a negative impact on the overall economy.

Corporations may also experience de-leveraging as a result of rising interest rates. With higher borrowing costs, companies may be less likely to take on new debt or may choose to pay off existing debt rather than incurring additional interest expense. This could lead to a slowdown in corporate expansion and investment, which could have a negative impact on economic growth.

Governments may also adopt more fiscal prudence in response to rising interest rates. Higher interest rates can increase the cost of borrowing for governments, which may lead them to be more cautious about taking on new debt or engaging in deficit spending. This could result in a reduction in government spending, which could have a negative impact on the economy.

Easing Inflation

Inflation was a major challenge for financial markets in 2022, but it is expected to slow sharply in 2023. Commodity prices, including wholesale oil and gas, have fallen significantly and inventories of goods are building up, indicating that price pressures will fall. Additionally, once inflation comes down, it is typically a sign of better times ahead as demand for goods and services typically slows during a recession.

Expected Peak and Pause in Interest Rates

It is anticipated that most of the large and rapid interest rate increases are behind us in major developed economies. The Fed funds rate is likely to peak at around 5% in the second quarter, while the UK bank rate will likely peak at between 4% and 4.5% in the third quarter. Central bankers are determined to fight inflation, but they are also aware of the potential risks of overtightening and crashing the economy. As a result, it is more likely that interest rates will plateau and stay high in 2023, with cuts potentially coming in 2024.

China's Gradual Reopening

There are signs that the Chinese government is softening its stance on Covid-19 restrictions, which is expected to have a positive impact on global demand. However, investors and the market will remain sensitive to any developments related to the pandemic in China. While the process of reopening will be complex and gradual, the normalization of Chinese activity will be incrementally positive for the global economy at a time when a mild recession is expected in 2023.

Conclusion

In summary, 2023 may prove to be a brighter year for investors, but it will be important to continue monitoring key economic markers in order to make informed decisions and navigate the challenges and opportunities of the year ahead. Whether you are a business owner, investor, or policymaker, staying abreast of these indicators will be crucial for success in the coming year."