Outlook 2023: Managing polycrisis

Crises come fast and furiously these days, from pandemic to war to great power rivalry to cost of living. Such shocks often have global dimensions and tend to reinforce one another.
Group Research05 Dec 2022
  • Global growth to slow by over 100bps next year
  • Inflation would ease, but not enough to allow the US Federal Reserve to cut rates
  • Real interest rates on USD funding would soar by over 200bps
  • China is typically a balancing factor during global slowdown; this time its capacity is limited
  • Markets could rally around cheap valuations and evidence of a shallow slowdown
Photo credit: DBS Photo

Annual outlook overview

Crises come fast and furiously these days, from pandemic to war to great power rivalry to cost of living. Such shocks often have global dimensions and tend to reinforce one another. Take, for example, the inflation spike of 2022 that brought forth forceful monetary response. The inflation shock came from multiple sources—supply chain disruptions caused by the pandemic pushed up used car prices; seismic policy responses to the pandemic pushed up asset prices and wages; the war in Ukraine caused food and energy prices to soar. There is even more to it; great power rivalry has the potential to go beyond Ukraine and spill-over elsewhere, potentially causing even greater havoc in the global supply chain and increasing the cost of trade and commerce. Finally, increasing frequency of adverse weather events, largely related to climate change, could compound near- and medium-term inflation outlook. Dealing with inflation, therefore, entails dealing with the polycrisis.

With this background, at societal and public sector levels, simultaneous, varied, and mutually reinforcing shocks should be considered as given; buffers and contingencies need to be at the core of business planning. In 2023, global markets will reckon with slowing trade and slowing growth, declining but still-uncomfortable levels of inflation, high interest rates, tight liquidity, likely debt distress in developing economies, and lingering food and energy insecurity. Silver linings will include public sector guided investments to cover production onshoring, green transition, aging, and tech disruption.

Investment strategies for 2023:

Interest rate trades will revolve around a period of slower activity and lower inflation.

FX markets will return to relative value after rate hike pause.

Credit market sentiment is weighed by higher rates volatility, but pockets of value are emerging.

Resilience and recovery themes to dominate for Asean equities.

After a bruising 2022, conditions are ripe for considerable upside around reopening for China and Hong Kong equities.

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Taimur Baig, Ph.D.

Chief Economist - Global

Chang Wei Liang

FX & Credit Strategist

Nathan Chow 

Senior Economist and Strategist - China & Hong Kong 

Chua Han Teng, CFA

Economist - Asean

Eugene Leow

Senior Rates Strategist - G3 & Asia

Chris Leung

Chief China Economist - China & Hong Kong 

Ma Tieying, CFA

Senior Economist - Japan, South Korea, & Taiwan 

Radhika Rao

Senior Economist – Eurozone, India, Indonesia

Daisy Sharma

Data Analytics

Duncan Tan

Rates Strategist - Asia

Irvin Seah

Senior Economist - Singapore

Samuel Tse 

Economist - China & Hong Kong

Philip Wee

Senior FX Strategist - G3 & Asia

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