– The world’s largest investment banks expect global economic growth to slow further in 2023 following a year roiled by the Ukraine conflict and soaring inflation, which triggered one of the fastest monetary policy tightening cycles in recent times.
The U.S. Federal Reserve has increased interest rates by 425 basis points since starting its current rate-hike cycle in March, sparking worries about a recession.
Real GDP (annual Y/Y) forecasts for 2023:
Bank Global U.S. China
Morgan Stanley 2.20% 0.50% 5%
Goldman Sachs 1.80% 1% 4.50%
Barclays 1.70% -0.1% 3.80%
J.P.Morgan 1.6% 1%
4.3%
BNP Paribas 2.3% -0.10% 4.50%
UBS 2.1% 0.1% 4.5%
BofA 2.3% -0.4% 5.5%
Credit Suisse 1.6% 0.8% 4.5%
Deutsche Bank ~2% 0.8% 4.5%
Citi 1.9% 0.7% 5.6%
Wells Fargo 1.7% 0.2% 4.9%
U.S. inflation forecast for 2023 and Fed terminal rate forecast:
U.S. central bankers see the Fed policy rate, now in the 4.25%-4.5% range after a 50-basis-point increase on Dec. 14, rising to 5.1% by the end of next year.
Bank U.S. Inflation Fed Terminal Rate
(annual Y/Y for
2023)
Morgan Stanley Headline CPI: 4.625% (by Jan ‘23)
3.3%Core PCE: 3.8%
Goldman Sachs Headline CPI: 3.2% 5 – 5.25%
Core CPI: 3.2% (by May ‘23)
Core PCE: 2.9%
Barclays Headline CPI: 3.70% 5% – 5.25% (by March
‘23)
J.P.Morgan Headline CPI: 5% (by Jan ‘23)
4.1%Core CPI: 4.2%
BNP Paribas Headline CPI: 4.40% 5% – 5.25% (by Q1 ‘23)
UBS Headline CPI: 3.6% 5%
BofA Headline CPI: 4.4% 5% – 5.25%(by March
‘23)
Credit Suisse Headline CPI: 3.8% 4.75% – 5% (by March
‘23)
Deutsche Bank Headline CPI: 4.3% 5.125% (by March ‘23)
Citi Headline CPI: 4.1% 5.25% – 5.5%
Wells Fargo Headline CPI: 3.8% 5% – 5.25%(by March
‘23)
Morgan Stanley sees the Fed delivering its first rate cut by December 2023, taking the benchmark rate to 4.375% by the end of that year. Barclays sees the rate between 4.25% and 4.50% by the end of next year, while Deutsche Bank sees it at 4.625% after a rate cut.
UBS expects U.S. inflation to be “close enough” to the Fed’s 2% target by the end of 2023 for the central bank to consider rate cuts.
Wells Fargo expects the Fed to begin its easing cycle in early 2024. BofA sees the rate between 2.75% and 3.00% by the end of 2024.
Forecasts for currency pairs, yields on U.S. 10-year Treasuries, S&P 500 target by the end of 2023:
Bank EUR/USDUSD/ USD/JPY S&P 500 U.S.
CNY Target 10-year
yield
Morgan Stanley 1.08 6.8 140 3,900 3.50%
Goldman Sachs 1.05 6.9 140 4,000 4.34%
Barclays 1.05 7.3 131 3.75%
J.P.Morgan 1.0 7.2 133 4,200 3.4%
BNP Paribas 1.06 6.9 128 3,400 3.50%
UBS 1.04 6.9 135 3,700 3%
(by June
2023)
BofA 1.1 7 137 4,000 3.25%
Credit Suisse 1.02 7.3 135 4.10%
Deutsche Bank 1.1 6.8 125 4,500 3.65%
Citi 1.15 6.90 133 4.35%
Wells Fargo 1.01 – 1.09 130 – 140 3.25%
Most banks see the euro falling below parity to the dollar during the year, before clawing back by year-end.
As of 1042 GMT on Dec. 15, 2022:
EUR/USD: 1.06
USD/CNY: 6.968
USD/JPY: 136.68
U.S. 10-year Treasury yield: 3.49%
S&P 500 level (as of close on Dec. 14): 3,995.32
