Overview
The global growth outlook for the balance of 2023 appears tenuous with a strong labor market and recent economic growth supporting the view that the US could avoid recession. Meanwhile, Europe must contend with rising interest costs, which are already weighing on Eurozone consumers, while weaker demand from China is a negative for manufacturing:
- The US Fed announced a "hawkish" pause and signaled that it was likely not done hiking rates. Strong underlying price pressures suggest that core inflation will remain elevated, supporting the odds that policy rates will remain high.
- On the inflation front, expectations are for a significant decline from last year's levels. Weakening energy prices and more favorable base effects have already driven headline inflation in developed economies notably lower, although core inflation remains elevated.
- Japan and pockets of Europe, where earnings growth and profitability are comparable but valuations are more appealing than in the US, are relatively more attractive. A still-hawkish Fed, stricter bank lending, negative business surveys, and high valuations in the US are therefore reasons to opt for a cautious investment strategy and favor themes like quality and safety.