A Global Outlook
Predictions are interesting to look at, and with the onset of 2023 comes analysts’ best guesses as to how the upcoming year will unfold. Blackrock provided its set of projections—all plausible, thoughtfully explained, and quite possibly to be undermined by unforeseen events, as so many predictions are.
Blackrock’s thesis is that supply challenges have left central banks in an unenviable position. Supply issues stem from the pandemic shift in consumer purchases from services to goods, in conjunction with demographics in developed countries, where graying populations have resulted in a worker shortage that means that production cannot be ramped up without a spike in inflation.
Central banks do not possess the tools to increase supply, so their dilemma is to either reduce inflation by crushing demand, or to allow inflation well above what they consider acceptable. Blackrock argues that central banks have been all in on reversing inflation, to the point at which a recession is now inevitable, and that in response, as economic damage accumulates, central banks will likely halt their rate hikes even if inflation is not yet on a path to fall back to 2%.
Blackrock’s tactical view of markets relies primarily on two evaluations—first, market sentiment with respect to risk (risk on or risk off), and second, the extent to which market have priced in a recession—and Blackrock notes that equity earnings expectations don’t yet appear to be pricing in a recession.
Blackrock’s predictions are well supported and plausible, but like any prediction, they can be undermined by future events. As an example, we can look back at a discussion of the pre-pandemic global forecast made by Blackrock in 2020. The concerns expressed at that time center around rising inequality and populism, taxes and regulation, as well as interest rates that were hitting the zero lower bound and thereby limiting the effectiveness of monetary policy. Commonalities with the 2023 outlook include trade tensions, de-globalization, and their potential effect of higher inflation, but clearly, world markets and economies stood in very different places in the beginning of 2020 versus the beginning of 2023. Only time will tell how much of Blackrock’s 2023 outlook will come to pass, but the past 3 years have shown that the world can be full of surprises.
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This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.