This week I’m covering my outlook for the economy and markets in 2023.

Today, I’m talking about the outlook for the economy in 2023. 

By the classical definition of 2 consecutive quarters of GDP decline in the first half of 2022, we briefly entered a mild recession. Growth turned positive again in the 3rd quarter, but it seems quite clear at least to me, that this will be short-lived and the odds of a recession in 2023 is quite high.  

The reason is that the Fed must continue raising rates in 2023 to fight sticky inflation, and economic data continues to show weakness. The Conference Board of Leading Economic Indicators has dropped in ten of the last eleven months, and housing continues to struggle.

The real question is: Will it be a mild recession or a deep recession? If it turns out to be a mild recession, we may have already discounted much of the anticipated decline and stocks may not drop much more from current levels. If, on the other hand, we have a more severe recession, stocks would likely test the lows reached back in October and possibly go lower.

There are several key events or unexpected shocks that could cause a deep recession, namely a financial system shock or a worsening of geopolitical conditions, particularly with China & Taiwan or Russia & Ukraine. 

The most likely event that would cause a deep recession would be excessive tightening on the part of the Fed. The Fed has a tough job ahead of them to raise rates enough to bring inflation back to targeted levels without overshooting the mark. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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