According to a recently released outlook called The New Macro Supercycle, analysts from Mitsubishi UFJ Financial Group (MUFG) predicted that 2023 will likely be the time markets pull from the constraints and problems of 2022, with positive signs already.
Tom Joyce, head of MUFG’s Capital Markets Strategy team, said the early days of 2023 have already brought rapidly declining U.S. inflation, a reopening of China, and lower energy prices from warm winter weather in Europe – good signs from three of the world’s largest economies.
“The ‘Great Moderation’ of low inflation and volatility during the past 40 years is over,” Joyce said. He added that recession fears are likely to be less concerning than made out to be last year and more greatly reflected in asset prices going forward. “Following the ‘polycrisis’ of 2022 stemming from concurrent geopolitical, energy, and economic shocks, we have entered a more clearly defined period for economies and markets.”
In 2022, markets shuddered from surging inflation and a tightening of the U.S. Federal Reserve. However, Joyce’s team predicts that the years ahead will bring more quantitative tightening and the investor scrutiny that comes with persistently higher inflation and instability, shorter economic cycles overall, long-term supply constraints on commodities, and a fragmented globalization that sees the economic focus shift further east. Combined, these were the themes the team coined the macro supercycle.
Further, Capital Markets Strategy anticipated the recessons to be more of a series of mild, rolling features, highly telegraphed in advance – with 2024 to bring broader, sustainable global recovery. This year, however, will likely be the year people most feel the squeeze of 2022’s actions, with little in terms of fiscal support to come due to the split Congress. Investors will likely benefit from more attractive yields, but earnings are likely to fall, and margins compress, so pre-funding strategies will likely grow more important.