2023 Investment Outlook
We expect inflation to moderate and central banks to pause tightening in the first half of 2023, which should help take the global economy from the current contraction to a recovery regime and set the stage for the next market cycle.

Executive summary
In 2022, central banks across the globe raised interest rates with “a degree of synchronicity not seen over the past five decades," the World Bank warned in September. Will they ease off the gas in 2023? That depends largely on the path of inflation going forward. Our annual outlook addresses the breadth of possibilities that lie ahead in the new year.
Inflation: The critical question for investors
Transcript
Kristina (00:05):
Hi, I'm Kristina Hooper, Chief Global Market strategist at Invesco, and I'm delighted to bring you our 2023 Investment Outlook. Back in September, the World Bank warned that central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades, which has increased the risks facing the global economy. The outlook for the global economy is largely dependent on central bank actions, and the path of monetary policy going forward is very reliant on the path of inflation going forward. So to address the breadth of possibilities that lie ahead in this environment, we have provided a base case scenario which we believe is highly probable, as well as an alternate scenario that we believe is less likely.
(00:56):
So let me start with the base case. We believe we're currently in the contraction phase of the economic cycle with global growth below trend and decelerating, which we expect will continue in the near term. We think the contraction globally will be a modest soft patch, although some economies will be hit harder than others. So as 2023 begins, we would favor a defensive position tactically. Now we expect inflation to moderate and central banks to pause tightening in the first half of 2023. The market is likely to begin to anticipate this in advance of an actual pause, which would mean the economic recovery would start to be priced in. We expect the economic recovery to unfold later in the year, where global growth will be below trend, but rising.
(01:48):
In our alternate scenario, inflation remains stubbornly high, forcing central banks to continue tightening monetary policy for longer. In our view, this would maintain the contraction regime for longer than we anticipate in our base case. We would expect this to increase the probability of a global recession, resulting in worse growth and further pain in risk assets. Thank you for listening. For further details, including our detailed asset allocation views, please download our complete Invesco 2023 Investment Outlook.
What do we see ahead?
Chief Global Market Strategist Kristina Hooper summarises our expectations for 2023, including the view that inflation should moderate and central banks should pause tightening in the first half of the new year. She also presents an alternative scenario in which persistent inflation extends the current period of contraction.
Time to watch: 3:07 minutes
Risks and opportunities
The dramatic market movements at the end of 2022 highlight both risks and opportunities for investors in Asia. David Chao, Global Market Strategist, Asia Pacific (ex-Japan) covers his expectations for the Asia markets in 2023.
Time to watch: 1:29 minutes
Inflation: The critical question for investors
Transcript
David Chao:
Hi, I'm David Chao, Global Market Strategist for Invesco Asia-Pacific. The dramatic market movements at the end of 2022 highlight both risks and opportunities for investors in Asia. Of course, most of the region finds itself in a very different place regarding inflation and allows for accommodative monetary policy in places like China and Japan that should help to counter a weaker global demand backdrop. The single biggest catalyst for the region is China's economic reopening, which we expect to gradually begin by the middle of the year. Our 2023 outlook for China assumes flat growth for the property market and a gradual reopening starting in the second quarter, which should lead to mid-single GDP growth and Chinese Securities Index earnings growth in the mid-teens. Still, risks to the downside in the first half due to the weaker export environment and tepid domestic household spending with much stronger prospects in the second half owing to the reopening.
Our base case and alternate scenario
Our base case anticipates that a pause in central bank tightening in the first half should help usher in an economic recovery. We also consider an alternate scenario in which central banks find themselves battling stubbornly high inflation, increasing the probability of a global recession.
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How did we get here?
Following the extraordinary loosening of monetary and fiscal policies across the world in 2020 and 2021, inflation has become broad-based and significantly above target in most economies, leading to aggressive central bank tightening. The major outliers are China (where policy is loosening), and Japan.
Global central banks have been tightening aggressivelyNote: Number of central banks among 38 leading central banks. The number of central banks hiking or cutting rates is measured on a one-month rolling basis.
Source: Macrobond and Bank for International Settlements, Sept. 30, 2022.
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Persistent inflation may attract hawks
An alternate possibility we have considered is that inflation could persist higher for longer, requiring central banks to be hawkish for longer than we expect in our base case. We would expect this to increase the probability of a global recession, resulting in worse growth and further pain in risk assets.
With inflation expectations priced above target, easing may be delayed (%)Note: Chart shows market inflation expectations derived from the difference between nominal and inflation-protected government bond yields for relatively liquid short- to medium-term bonds.
Sources: Bloomberg and Invesco, as of Nov. 4, 2022.
What are the asset allocation implications?
Our base case calls for the global economy to move from the current contraction to a recovery regime. Below, we show which assets we would favor in each regime.

Download the full investment outlook
A collection of charts that illustrate the details of our base case and alternate scenarios.
Download the full global policy outlook
Our Government Affairs experts from around the globe summarise the policy and regulatory issues that they’ll be watching in the year ahead.