Insight

Insurance Insights Q2 2023: Macro outlook

Insurance Insights Q2 2023: Macro outlook

As we enter the back half of this year, it’s time to share our midyear outlook.

Our base case anticipates a relatively brief and shallow global economic slowdown as inflation continues to moderate and monetary policy tightening nears an end. We call this a bumpy landing because we expect there will continue to be some economic damage in this scenario. However, against this backdrop, we see resilient domestic demand in many economies, especially in services.

Figure 1: Services activity is solid despite slowing in goods consumption
Figure 1: Services activity is solid despite slowing in goods consumption

Source: Bloomberg L.P., as of April 30, 2023. An investment cannot be made into an index.

In the US, we believe rate hikes are ending, and US inflation will continue to fall, albeit imperfectly. We believe the US is likely to avoid any broad-based recession as economic activity remains relatively resilient. The Eurozone and UK are likely to follow a pattern similar to the US, but with a lag.

In contrast with the West, the APAC region is in a markedly different place in its cycle and is our favorite region due to expected outperformance for the rest of the year. North Asian economies such as Taiwan and Korea are likely to see a continued up-cycle as the semiconductor industry starts to recover. While Japan could see further capital flows as risk assets gain another leg up from valuation re-ratings due to structural and company governance developments. 

China’s reopening has been slower than expected though further stimulus measures are likely which could stabilize markets and ensure that growth is back on track. The big question is whether the property market can be right-sized, though there are no easy answers. 

In sum, we believe we are close to a global policy peak, that disinflation is underway around the world, and that a relatively brief global economic slowdown is occurring, but markets are likely to soon look past this episode and begin to gauge a future economic recovery. 

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.