Three forces shaping growth, inflation, and markets in 2023

SINCE the pandemic, our view of the medium-term outlook has shifted to become more pessimistic on inflation and equity market returns while maintaining our overall thesis that the world economy will eventually be characterised by low growth and low inflation once again.

Three very different forces are shaping the three key regions of the global economy: US excess demand and the associated aggressive monetary tightening; the European energy crunch triggered by the Ukraine-Russia war; and China’s broken growth model. How the different forces will combine adds uncertainty to our outlook.

In normal times, each shock would have been significant enough to dominate our global research. Now, we are analysing the implications of all three factors for growth, inflation, and markets as each shock works its way through the global economy over 2023 and beyond.