(Reuters) - The world's largest investment banks expect global economic growth to slow further in 2023 following a year roiled by a war and soaring inflation that triggered one of the fastest monetary policy tightening cycles in recent times.
The U.S. Federal Reserve has increased interest rates by 375 basis points this year since rolling out its first hike in March. This has sparked worries about a recession, even as the central bank is expected to temper its pace of hikes.
Real GDP (annual Y/Y) forecasts for 2023:
Bank Global U.S. China
Morgan Stanley (NYSE:MS) 2.20% 0.50% 5%
Goldman Sachs (NYSE:GS) 1.80% 1.1% 4.50%
Barclays (LON:BARC) 1.70% -0.1% 3.80%
JPMorgan (NYSE:JPM) 1%
BNP Paribas* 2.3% -0.10% 4.50%
UBS 2.1% 0.1% 4.5%
U.S. inflation forecast for 2023 and Fed terminal rate forecast:
Bank U.S. Inflation Fed Terminal Rate
(annual Y/Y for
2023)
Morgan Stanley Headline CPI: 3.3% 4.625% (by Jan '23)
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)
JPM Headline CPI: 4.1% 5% (by Jan '23)
Core CPI: 4.2%
BNP Paribas (OTC:BNPQY) Headline CPI: 4.40% 5% - 5.25% (by Q1 '23)
UBS Headline CPI: 3.6% 5%
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 4.5% by the end of next year, following 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.
Forecasts for currency pairs, yields on U.S. 10-year Treasuries, S&P 500 target by the end of 2023:
Bank/Metric EUR/ USD/ USD/ S&P 500 Target (NYSE:TGT) U.S. 10-year
USD CNY JPY yield
Morgan Stanley 1.08 6.8 140 3.50%
Goldman Sachs 1.05 6.9 140 4,000
Barclays 1.05 7.3 131 3.75%
Deutsche Bank (ETR:DBKGn) 1.1 125
BNP Paribas 1.06 6.9 128 3,400 3.50%
UBS 1.04 6.9 135 3,700(by June 3%
2023)
UBS sees the euro falling below parity to the dollar by March 2023 before clawing back by September.
As of 1346 GMT on Nov. 21, 2022:
EUR/USD: 1.02
USD/CNY: 7.16
USD/JPY: 141.72
S&P 500 level (as of Friday's close): 3,965.34