Economy & Policy

• In Europe, economic growth is better than expected due to falling energy prices. The reopening of China could also provide a boost to the global economy. In the US, on the other hand, the situation especially in the industrial sector and housing market is less favourable. This could lead to growth slowing down in the second half of 2023.
• Inflation seems to have peaked in both the US and Europe. Core inflation is falling at a slow pace but may remain above the US central bank’s target rate. In Europe, core inflation remains high too and has even risen recently.Budgetary and monetary policy.
• Programmes like EU-Next Generation and the Inflation Reduction Act in the US continue to be substantial. Fighting inflation remains the main objective of central banks.  The situation at banks may cause a slower pace of interest rate hikes.

Financial markets

• Central banks expect rates to peak mid-2023. After recent developments on financial markets, investors are looking forward to a break and, in some cases, even to the first rate cuts. On the other hand, economic signals have been less negative since the start of 2023, bringing riskier bond themes back into focus. 
• The collapse of SVB and Signature Bank in the US, and the acquisition of Credit Suisse by UBS led to much volatility. Earnings figures for the fourth quarter of 2022 were in line with expectations. Against previous quarters, however, the outlook for companies is less favourable.   

What risks do we see?

• Inflation is top of our list. Core inflation remains at a high level in Europe as well as in the US. That persistence is affecting the policies of central banks and, consequently, economic growth.  We are keeping an eye on the reopening of the Chinese economy, as the impact of this on the global economy is unclear.  
  

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