The year 2023 heralds a paradigm shift from an economic perspective, according to BlackRock’s experts and its vice president Philipp Hildebrand. According to them, the uncertain geopolitical situation combined with the rise in inflation heralds the beginning of a new era in the international economy.
BlackRock foresees a bleak future
Philipp Hildebrand, the vice chairman of the giant BlackRock, surrounded by a team of the company’s top executives, warned of a new economic era and a total paradigm shift.
“The Great Moderation, the period of four decades of largely stable activity and inflation, is behind us. The new regime of greater macroeconomic and market volatility is taking hold. A recession is in the offing.”
The Great Moderation is the period from the 1980s until the financial crisis of 2008, during which macroeconomic volatility was at its lowest and all the various important factors such as unemployment, economic growth or inflation, were able to observe a continuous stable level.
However, as Philipp Hildebrand points out, since 2008 these macroeconomic factors have become unpredictable and inflation can no longer be hidden. Various events, such as the war between Russia and Ukraine, have only encouraged international division.
We have seen this with the eviction of Russian banks from the international SWIFT network, encouraging Moscow to turn to its Chinese counterparts, among others.
“This is, in our view, the most tense global environment since World War II. We see geopolitical cooperation and globalization evolving into a fragmented world with competing blocs. This is happening at the expense of economic efficiency.”
Overall economic growth held back
According to BlackRock’s forecasts, inflation will inevitably be maintained at a higher level than that targeted by central banks due to the following 3 factors:
Aging populations, which will combine a decline in the available labor force with rising costs related to the loss of autonomy of the elderly;
Geopolitical tensions, as mentioned above, which have already begun to disrupt stable global supply chains;
A transition to clean energy which will lead to a de facto increase in inflation if it is not done in the long term.
Furthermore, according to the asset management giant, the U.S. Federal Reserve (FED) will not be able to stop rising inflation this time around by simply cutting interest rates as it has been able to do so far.
“Central bankers will not come to the rescue when growth slows in this new regime, contrary to what investors have come to expect. That’s why the old playbook of simply ‘buying the dip’ doesn’t apply in this regime.”
Moreover, various signs such as a slowing housing market (and overall home price appreciation), declining household savings, or a drop in investment among business owners, are, according to BlackRock’s teams, warning signs of the economic collapse to come as early as next year.
Wall Street banks are no more confident: whether Morgan Stanley, Bank of America or Deutsche Bank, these pillars of the international economy are forecasting a fall in US stocks of around 20% during 2023. According to David Solomon, CEO of Goldman Sachs, there is only a 35% chance that the US economy will avoid recession next year.
And as far as France is concerned, the recession is already here: according to available data, French GDP is expected to fall not only for this last quarter of 2022, but also for the first quarter of 2023. Unemployment is expected to reach 8%, and public deficits and debts are also expected to explode.