The economic backdrop foreseen for the next 12 months suggests that the ongoing correction will continue through the first half of 2023, featuring a profits recession and still elevated (albeit moderating) inflation. In H2 some of the headwinds should abate (with lower price pressures and the Fed on hold), supporting a gradual shift from the current defensive stance (with its tilt towards gold, investment grade credit and, marginally, government bonds) to increased risk exposure (mainly via DM equity and high-quality credit).

In 2023, the business cycle will be shaped primarily by two interconnected factors: a significant global slowdown, featuring still above-target inflation – and its fallout on monetary policy - and the resulting profits recession. Growth is expected to decelerate across developed markets (DMs), ranging from sub-par levels in the United States to a few quarters of contraction in the Eurozone and United Kingdom. The cost-of-living crisis generated by the exceptionally fast pace of increase in global inflation experienced over the past 18 months and its persistence into 2023 – albeit at a slowing pace – will hit both consumer spending and sentiment severely.

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