
I published a short three month review back in March. Now that we are in the summer doldrums – or perhaps the rainy season if you’re in the UK – I want to give a review of my predictions. To be clear the main themes stay in place:
Inflation will reduce but at a slower pace. It will remain sticky in UK.
Credit conditions will generally worsen in UK, US and EU.
Increasing government deficits will start to increase recessionary conditions, especially in UK.
Populist politics will lead to poor policy choices; again hurting growth.
No end in sight in the Ukraine conflict.
Global warming will start to threaten growth.
To be fair it’s not going to be easy to be in government in the next few years.
Inflation
So far so expected on inflation. It is mainly falling but with more variability than many thought. A clear feeling of impoverishment is increasing for many people. The next stage of inflation reduction is going to be more difficult to achieve.
Low Growth
Things remain very difficult for the UK.
The European economies are roughly where they were. Germany has underperformed, but not by too much.
The political transition in the US remains the main risk and I still think it will be very bumpy at the minimum.
Wars
I don’t see a neat end to the Ukrainian war this year. Nor anything better than a frozen conflict next year.
The Sahel remains important. Migration is only increasing and adding a destabilising factor to European politics.
Science
Digitalisation - remains an ‘of course’ statement. AI will remain important for the foreseeable future. Remember to keep up on developments in Quantum Computing and Fusion.
On climate change it’s a been depressing year. We may see more noise from governments, but unless they have the financial resources to invest in change, the results will be putting more burden onto the average citizen. This is likely to lead to a continuing backlash due to the cost of greening the economy.
All the above remain true and have continued to increase in importance and visibility.
Natural disasters
As I said – they will happen. A few have, nothing surprising. Heat in Europe, and related wild fires, seem inevitable – as a stated in the March review. Remember the wet UK summer hasn’t been that cold, that special, nor is it evidence the world isn’t warming.
The World of Finance
So the banking crisis was a ‘mini-crisis’ as I predicted, and then reiterated in March. Today I would advise not forgetting that the issues that caused concern earlier in the year are still in place. I don’t think we get another crisis, but we will get nervousness, and less performance, from banks. More than you may expect I think in the next six months to a year.
Markets
My March update has not been so accurate on markets. I expected FX to be more volatile, and with some possible equity volatility. In fact the markets have had a little movement but much less volatility than I had expected. I still think there could be a trade down in the equity markets, with this giving some support to Fixed Income. But I don’t have much conviction. If markets stay as they are, a slow steepening of the yield curve should occur in EUR and USD. Commercial real estate will suffer and may lead to poorer credit conditions in general.
Make sure you:
Carry out cyber attack dry runs.
Prepare for falling revenue and government pressure on margins.
Spend less time on regulators and more on portfolio risk management.
It’s still a fingers crossed world. For better growth than expected and the easing of the political tensions and wars.
In the next post I’ll return to Risk Management.
Lewis O’Donald
July 31st 2023
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