Mid-year outlook 2023: key convictions for H2 2023

“Markets are at a critical juncture as central banks are hitting the pause button after the fastest hiking cycle since the ‘80s. Quality is the compass for navigating this phase.”

Mid-year outlook 2023- key convictions for H2 2023

1. Narrow and uncertain path to growth, with a bottom in H2 2023
The lagging effects of tightening in the real economy will lead to a further deceleration in growth with divergences: a mild US recession, anaemic growth in Europe and more resilience in emerging markets. With low absolute numbers, both on the positive (Europe) and negative (United States) sides, the path ahead remains very uncertain.

2. Gradual slowdown in inflation
Inflation is trending lower, but the speed of adjustment is slow as core inflation remains sticky and stubborn. Evidence from past episodes of high US inflation suggests it will take about two years to bring core inflation down by half from its peak level. This is also our view this time.

3. Monetary tightening is close to peaking, but do not expect a U-turn
We believe that Fed and ECB rates are close to their cyclical peak and do not expect any cuts for the remainder of 2023, as inflation remains above central banks’ targets and the slowdown is pushed back towards year-end.

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