8NOVEMBER 2023CFO TECH OUTLOOKIN MY OPINION2023 OUTLOOK: RECESSION OR RECOVERY?By Ms Selena Ling, Chief Economist & Head, Global Markets Research & Strategy, OCBC BankHeading into 2023, the near-term economic outlook seems bleak with rising recession risks and elevated inflation. Hopes for post-pandemic recovery are in the process of petering out. The major economies may face a synchronised downturn due to idiosyncratic risks, namely the aggressive frontloading of monetary policy tightening in the US, energy crisis in Eurozone, and the zero-Covid strategy and property market weakness in China. Elsewhere, the Emerging Market (EM) economies are grappling with USD strength, fickle portfolio flows, persistent geopolitical tensions between the major powers, and separate waves of supply-side and commodity-driven inflation shocks. However, things might not be all doom and gloom. Instead, the 2023 outlook could fall into a story of two halves. The first half may still see bouts of heightened market volatility as investors continue to read the tea leaves and second-guess when central banks will pivot and pause or eventually cut interest rates. There are two key factors to watch in the second half. Firstly, whether the Fed's terminal rate will peak closer to 5% or 6% handle and if the US growth slowdown and moderation in inflation would be significant enough for the Fed to claim victory and precipitate a policy reversal. Secondly, when China relaxes its zero-Covid strategy in a more meaningful fashion beyond the recently announced measures. These two factors could be a turning point and provide some upside risk. For now, the US economy appears to be fairly resilient. Consumer spending is holding up well amid a tight labour market that has shown little signs of softening despite layoffs by big tech companies amid the global growth and demand slowdown. The recent crypto-currency fallout sparked by FTX.com also appears to have limited contagion to other asset markets. Yet, as oil market gyrations suggest, investors remain sensitised to demand-supply shifts and OPEC+ signals as the latter's output cuts and hikes can play a swing role amid the anticipated impact of the upcoming EU's embargo on Russian oil. The G7 proposal to cap Russian seaborne oil prices will factor here too, especially given the gap between the price cap and the market spot price.For Asia, the elephant in the room is China. While China's 2022 growth prospects have been beaten down, the base effects and policy relaxation could mean a more conducive environment for 2023 to see an improvement. At this juncture, repeated upticks in Covid infections that warrant stricter measures are still the norm. While a soft-landing scenario for the Chinese economy is still our base case in 2023, it will likely be characterised by bouts of market doubts and policymakers Ms Selena Ling
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