Fidelity's 2023 Investment Outlook

Fidelity's 2023 Investment Outlook highlights the emergence of financial stability as a third pillar of risk, alongside inflation and recession. The report predicts a high likelihood of a recession in 2023, first in Europe, followed by the US, with the severity of the recession being influenced by the Federal Reserve policy, gas flows and fiscal response in Europe, and China's recovery. The report also identifies the structural increase in inflation, driven by the energy transition, demographics, and reshoring, as a key driving factor throughout 2023. The strong US dollar, resulting from interest rate differentials, is expected to create headwinds for countries that are dependent on trade, have large external debt burdens, or maintain a currency peg. The report predicts a low likelihood of a global accord on controlling the dollar, and central banks must ramp up efforts to defend currencies. The report also mentions the gradual easing of China's strict anti-Covid measures, and the need to closely monitor the new Politburo's economic strategy, especially with regards to property sector reform, national security, decarbonization, and digitization. The report predicts accommodative policy in 2023, with more investment in targeted sectors, and potentially more easing from the People's Bank of China, subject to the government's priorities of reasonable growth and common prosperity.