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Will There Really Be a Recession in 2023?

Economists started thinking about the possibility of a recession when it became apparent that inflation wasn’t a temporary but a longer-lasting phenomenon. Expectations for a recession grew as rising prices persisted despite the Federal Reserve’s decision to boost interest rates.

For a long time now, economists have predicted a recession, and now most believe it will officially begin somewhere in the first half of next year. It can be argued whether it is shallow, deep, short, or long. However, the majority opinion among analysts indicates that the economy is entering a period of downturn.

Many economists have included depression in their 2023 estimates. However, opinions on the exact date and depth of the downturn vary widely.

Both sides blame the Federal Reserve’s interest rate policies, even though the Fed came to the rescue following the last two recessions. Interestingly, part of the blame goes to the Covid-19 effects on demand and supply, caused by lockdowns that saw a large increase in online activity as most people got their entertainment from SlotoCash Casino and other online platforms.

Why Economists Feel There is a Risk of Recession

There are many potential causes or contributors to a recession; however, in 2023, there seem to be two that stand out as the greatest dangers to economic growth.

Inflation is the biggest economic threat for 2023, and any investor that has not been hiding underneath a rock in the preceding year knows. In June 2022, the index for consumer prices climbed 9.1%, its biggest inflation figure in over 40 years.

The second-largest risk factor in 2023 is the one thing that can help with inflation: increased interest rates. The cost of borrowing funds rises when interest rates rise, restricting businesses from using debt to finance growth investments. Higher rates also lower consumer spending, lessening demand pressures that contribute to rising prices.

The Federal Reserve started its campaign of rapid interest rate increases in an effort to curb inflation. The Fed has increased its goal range for the federal funds rate from zero to its range of 3.75 percent to four percent.

Thankfully, inflation has decreased from its June high of 9.1% to the most recent measurement in October’s CPI of 7.7%. Nevertheless, 7.7% inflation still seems to be significantly well above The Fed’s protracted target of 2%; thus, interest rates could likely move higher mostly in the coming months.

The prolonged war between Ukraine and Russia has also sown confusion throughout the international energy market, especially in Europe. It seems conceivable that member countries of the union will be forced to do without Russian gas coming winter. A gas and oil price spike in the months ahead could devastate the already shaky U.S. economy.

How Severe Will It Be If It Happens?

A recession is defined as a period of economic contraction that lasts for two consecutive calendar quarters or longer and has widespread effects on the economy. When determining whether or not a recession has occurred, the National Bureau of Economic Research considers the downturn’s severity, breadth, and duration.

Nevertheless, the NBER may declare a recession when any of these factors become severe enough. For example, the 2020 pandemic slump was so severe and short-lived because of its fast onset and widespread effects.

It is unknown how long regulators can sustain current high-interest rates.

In the futures market, investors anticipate that the Federal Reserve will begin lowering interest rates by 2023. According to the Fed’s own projections, interest rates will begin to fall in 2024.

Swonk thinks the Fed will be forced to reverse course on rate hikes due to the recession, whereas Simons thinks a downturn may continue until the end of 2024, even if rates stay high.

What Should Investors Do?

Several broad tactics exist that investors can employ to mitigate losses and make the most of gains in a down economy.

Before doing anything else, you should consider decreasing your dependence on volatile stocks and raising your cash reserves. While sitting on funds might not seem like the most thrilling move, it does limit exposure to market fluctuations and give you options in the event of a recession in 2023 that could lead to favorable buying conditions.

In addition, savers can currently earn 3 percent or more with an online account, and that rate, along with others, will grow if the Federal Reserve raises its benchmark interest rate.

Furthermore, value equities have often done better than growth stocks in times of higher interest rates. Discounted cash flow valuations of corporations suffer at increased interest rates, which is bad news for high-growth stocks.

During economic downturns, certain equities and market sectors have a history of outperforming the market as a whole because they are more defensive. Income from utilities, healthcare, and consumer staples firms is relatively immune to economic fluctuations and consumer confidence, making them excellent candidates for defensive investments.

Take Away

While central banks combat inflation, China is reopening its economy following Covid-19 constraints, and the Ukraine war is driving the global economy into recession.

Financial experts on Wall Street anticipate that the first quarter of the year will be volatile after the global markets had their greatest drop ever since the 2008 economic crisis.

It is still anticipated that the US S&P 500 will close in 2023 at a little higher level than it opened the year.

 

 

 

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READER COMMENTS BELOW

4 Responses to “Will There Really Be a Recession in 2023?”

  • Tail also win:

    According to pappy there is NO RECESSION!

    But but (qualifier) if there is recession in other countries, then may, maybe not impact sg!

    Head I win, TAIL I also win?

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  • Rejoinder…

    IF there is any recession, not their fault, blame the Moon and the Sun. lol

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  • Spineless Sinkie Syndrome:

    TRE Tech:
    Rejoinder…

    IF there is any recession, not their fault, blame the Moon and the Sun. lol

    Another rejoinder…

    IF Economy boom, they will claim credit and say its due to their super “World-Class” team of brilliant MIW scholars & elites.
    But, IF recession comes, the same gang will blame the Moon, the Sun or yesterday’s “Mee Siam Mai Hum” not cooked properly, Yes?/No? LOL.

    Heads PAPies win, Tails Sinkies lose or LPPL (Lan Pah Pah Lan), PLLP LOL.

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  • xoxo:

    Asian countries will see better growths,bar another *pandemic*,natural or *manufactured*???

    But,come what may,it looks like the RICH WANTS TO BECOME RICHER and one of the ea$y pea$y is to ma$$age the $tock markets.
    Imagine,A COVID STOCK MARKET EUPHORIA that has become ADDICTIVE!

    Here in $in City,the STATS DEPT CANNOT FURNISH SEGREGATED NUMBERS ON SGS(CITIZENS ) VS PRs but LUMP THE TWO CONveniently as *LOCALS* especially so in LABOUR STATS.
    BUT,they can FURNISH DETAILED SEGREGATED NUMBERS FOR INFLATION!
    And,to assuage the sheeporeans,come out with the LOWEST INFLATION RATE for the lowest 20 percentile income group with the TOP EARNER$ facing the HIGHE$T INFLATION RATE???

    THATS CONNING YET AGAIN!
    WHAT IS THE INCREMENTAL *NET WORTH* afteraccruing for *inflation*?
    Are THE RICH WOR$E OFF???

    INCOMES OF THE RICH ARE MUCH HIGHER,both from active and passive incomes.
    As for the ELDERLY POOR N JOBLESS,THE REAL INFLATION IS INDEED HIGHER.
    THOSE WITH SALARY *INCREA$ES* N BONUSSES HAVE MUCH LOWER INFLATION IMPACT IN TRUTH.
    Even after accruing for LUXURY CARS LIKE BENTLEY$???

    THOSE WITH ZERO INCOME BEAR THE FULL FORCE OF INFLATION EVEN IF SOME HIGHLY EDUCATEDCON$ say it is the LOWEST?
    LOWEST?
    My poor toes are LOL!
    WHAT A BLINKING JOKE!

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