What to Watch in 2023

As is our custom, we say goodbye to each year with a glance back and a look ahead. In what follows, we briefly revisit our 2021 year-end calls for 2022 and evaluate how well or poorly we did, and then take a deeper dive into key themes for the world economy and financial markets for 2023. Our aim is to provoke thinking and debate, and we welcome your feedback.

Looking back at 2022

This time last year, we offered five forecasts for 2022.1 We got a couple right and a few dead wrong. Here’s a summary.

The first forecast we nailed was that 2022 would see a surge in demand for electronic vehicles (EVs), with worldwide EV sales topping total automobile output of General Motors. Already in the first half of 2022, global sales of electric vehicles rose to 4.3 million units, nearly double GM’s half-year car production of 2.8 million.2 That’s testimony to the technology that is making EVs viable forms of transportation, as well as the subsidies and tax breaks that make them increasingly affordable.

Our second successful prognosis was the collapse of cryptocurrency prices. We felt the market value of cryptocurrencies would tumble 20% in 20223 as hype about digital money cooled off. In the end, we were too cautious. Based on our calculations, cryptocurrencies lost roughly 60% of their value in the past twelve months.4

Lest we gloat, we got clobbered on two forecasts. We thought US core personal consumption expenditures inflation would drop below 3% by the end of 2022. Inflation proved to be much stickier than we thought and will probably finish the year above 5%. We also thought that declining inflation would push stock markets up 20% this year. Major stock indexes are likely to finish 2022 more than 10% in the red.

Finally, on one 2022 forecast, the jury remains out. We said a year ago that “sustainable assets” (i.e., those managed according to Environmental, Social and Governance [ESG] criteria) would increase from one third to 40% of US assets under management. While it does appear that ESG investing continues to expand, the data we need to validate our view remains unavailable at the time of publication.