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INVESTMENT OUTLOOK FOR 2023 - 6 - MACRO OUTLOOK DANIEL MORRIS Chief market strategist The recession march The global economy seems on an inevitable march towards recession. The causes are well-known: central banks aggressively raising policy rates to reduce inflation, an energy shock in Europe, and zero-Covid policies (ZCP) and a shaky property market in China. Much of Europe is already in recession. We expect one to begin in the US in the third quarter of 2023, and while China’s growth will likely not turn negative, it will be below historic levels. One can easily think of ways in which the situation could yet worsen: a breakdown in a key financial market due to the rapid rise in interest rates, a cold winter and blackouts in Europe, or a flare-up in geopolitical tensions between the US and China. US Given the strength of the US labour market, reflected not only in a low unemployment rate, but also in high (nominal) wage gains, declines in non-farm payrolls in 2023 will likely be necessary. Consumer demand will weaken, even though households still have a large amount of ‘excess’ savings. These savings are falling and, we should note, are concentrated among high-income/low-consumption households. A deterioration of the labour market will be key to bringing services inflation under control. Goods inflation should drop thanks to base effects and lower demand, while

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