Last year, the economy was mainly affected by rising energy costs. The worst turbulence now seems to be over, and the new year offers hope of calmer waters.

Turnaround and inflation: These two terms dominated the 2022 financial year. Russia’s attack on Ukraine in February 2022 sparked a rise in geopolitical uncertainty on a scale last seen in the 1960s. Energy prices have risen sharply as a result of the threatened energy supply in Europe. This accelerated the rise in inflation rates. By the end of the year, inflation had climbed to double-digit percentages in several European countries. As a result, the war in Ukraine also led to a turning point in monetary policy. None of the recent interest rate hikes has proceeded as quickly as the normalisation of monetary policy last year.

This turnaround led to a turnaround in interest rates. Higher financing costs and higher energy costs at the turn of the year make a recession likely for 2023. Despite this gloomy outlook, investors are likely to expect greater planning security in three respects.

Greater planning security

  • Firstly, Europe's energy supply seems secure for this winter at normal temperatures. The natural gas storage facilities were full at the beginning of December, and the production of French nuclear power plants has recently been significantly increased. New supply contracts are being concluded with LPG-producing countries, and 16 new LPG-receiving terminals are under construction or planned across Europe. Nevertheless, Russian gas supplies are unlikely to be fully replaced. Sustainable savings and long-term replacement by renewable energy sources remain necessary. High energy prices and the outsourcing of the production of particularly energy-intensive goods are expected to continue in Europe.
  • Secondly, the further development of inflation also suggests a return to planning security. It has already peaked in the US. There, the inflation rate dropped back below 8% since its peak of 9.1% in June. In the first few months of 2023, the higher electricity prices will be included in the inflation calculation at consumer level. Inflation rates will then gradually normalise again in the Eurozone and Switzerland over the coming quarters.
  • Thirdly, companies and private property owners should also enjoy greater planning security with regard to monetary policy and financing costs in the first half of 2023. We expect the leading central banks to carry out further interest rate hikes in the first quarter of 2023. In Switzerland, the Swiss National Bank (SNB) is expected to raise its key interest rate to 1.5% by March 2023. However, with the recession expected in the coming months, the interest rate hike cycle will be completed in the first half of 2023.

Key interest rates likely to fall in the US

Key interest rates in the US are likely to be lowered again for the first time in the second half of 2023. This also brings the turnaround in interest rates for long-term bond yields to a close. For long-term investments, this means a return of planning security in terms of financing costs.

However, there is no answer to the big question of whether and how the war in Ukraine will end in 2023. After all, in 2023 investors will be able to better assess to what extent the pandemic and the war have actually reversed the long-standing trend towards increasingly lower interest rates.

In times of increased geopolitical uncertainty, the return of a degree of predictability in 2023 is nevertheless to be welcomed.

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