2023 ECONOMIC PREDICTIONS – HOW BAD WILL IT BE?
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In 2022 we saw the pandemic, wars, tech stocks getting smashed, inflation, and skyrocketing interest rates.
Given all that, I would say anything could literally happen in the next 12 months so join me ’til the end of the video for my 2023 Economic Predictions.
2023 Economic Predictions:
- Stock markets will crash.
- Property Markets will drop.
- Inflation will fall through the floor.
- Interest Rates will drop.
1. STOCK MARKETS WILL CRASH
I don’t think it would be any surprise to anyone if we continue to see drops in these markets. Inflation affects businesses as well. This is seen the same as how we see it in rising costs and this hampers the ability for them to turn a profit.
The lower the expected profit means the less valuable those stocks are. We are all seeing the larger tech companies in the US start laying off employees like it’s going out of fashion over the last few months.
How bad will it be? I don’t know, but I get the feeling that it will be worse than what people think, and if it gets to a particular point where governments are worried about mass job losses and rising unemployment then they will step in and help.
2. PROPERTY MARKETS WILL DROP:
It’s no secret that low home loan interest rates fuelled the last leg of the housing boom. From there, it’s easy to figure out that higher interest rates will make the market drop and we are starting to see that now.
Borrowing capacity has dropped by 30-40% which simply means that on the aggregate level, less money is going into the property market.
I know there are different individual markets throughout Australia. But here in suburban Melbourne it feels like the discounting of properties on market is only just getting started.
How much it drops will depend on how long it takes for the stock markets to crash and unemployment to start increasing.
The property market does affect the share market due to what’s called the “wealth effect”.
“The “wealth effect” is the notion that when households become richer as a result of a rise in asset values, such as corporate stock prices or home values, they spend more and stimulate the broader economy.” (Source: nber.org)
The fact that home prices are dropping combined with inflation and higher interest rates means that consumers will start curbing their spending. Less spending means less profit for businesses, which directly impacts the stock market.
3. INFLATION WILL FALL THROUGH
Two things underpin my point here:
- There has been less money created through stimulus.
- There is less money created through debt because of raising interest rates.
Inflation is a very nuanced issue and there are a lot of very smart people on different sides of the argument, but I’m just going to keep it simple:
Inflation is measured year on year. It went up because we printed 20-30% of the money supply via stimulus and then helped it along more by dropping interest rates. Now we are doing the opposite so inflation will come down.
4. INTEREST RATES WILL DROP
On this prediction, I am not 100% sure because central banks will probably try to keep rates higher to try and avoid getting in another inflationary period. But for the purpose of this video, I’m going to get off the fence and say that central banks will force to drop rates as investors flood back to the safety of bonds.
I’ll be doing a review of this video and its prediction later on in the year to see what I nailed and what I failed so subscribe to the channel to keep updated.
I think the central banks are potentially going to keep interest rates higher despite inflation falling by more. This is going to be tricky but I think they will want to avoid dropping rates too low and having asset prices skyrocket again.
If they don’t drop the rates by enough then people will start selling their properties because they can’t afford the loan repayments. They don’t want asset prices to go too low either because the negative wealth effect will kick in again.
Essentially, the central banks may try and find a goldilocks zone for interest rates. At the same time they may come to the agreement with the government that they will provide more stimulus to the economy and over a period of years try and boost wages higher so that the debt burdens become more affordable.
If they do this, I don’t think it will work. Simply because in the pandemic 20-30% of the money supply was printed and all it did was mean that we got inflation, which went up faster than wages did. All it did was make us poorer.
Overall, I think the nature of governments and central banks has been one that they can control much more than what they actually can. Rather than tweaking knobs and dialing things in our leaders are either flooring the accelerator or the breaks, I think the ability of the central bank to find a goldilocks zone for interest rates is one that I’d be highly skeptical of. Unfortunately, we are going through a moment in time that I think will end badly.
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