Wilmington Trust 2023 Markets Outlook Forecasts Possible Mild Recession, Continued Inflation

Identifies labor markets, energy transition, and China's socioeconomic evolution as key factors

WILMINGTON, Del., Dec. 7, 2022 /PRNewswire/ -- Wilmington Trust today released its 2023 Capital Markets Forecast (CMF) -- "Inflationary Vortex" -- which identified several key headwinds for the global economy heading into the new year, including continued pressures in a tight labor market; the transition to clean energy; and China's socioeconomic evolution.

The report, authored by Chief Investment Officer Tony Roth and his team, forecasts the potential for a short-lived, mild recession beginning in Q2 of 2023 followed by an economic rebound shortly after.

As part of the CMF, Wilmington Trust announced its investment positioning for the new year, maintaining balanced exposures across asset classes, sectors and factors, while maintaining the same level of cash reserves.

"The post-pandemic world has unleashed massive, lasting changes to the economy and supply chain, and we can expect short- and long-term impacts. Assessing the balance of these inflationary forces is critical for policy, rates, and investment strategy," said Roth. "We have been living in a decade of low inflation, rates and monetary policy, and for the moment, we will not be going back to the economy we had before the pandemic. "

The 2023 CMF says inflation will continue to largely define and shape the global economic landscape and financial market performance in 2023, structurally driven by:

• Labor Market – Wilmington Trust expects a slight upward movement in the unemployment rate, including limited nationwide net job losses, with pressure lasting into 2024 and 2025.
• Energy Transition – With efforts to transition away from fossil fuels and toward renewable energy, production will likely slow before investment in renewables catches up, leading to limited supply.
• China – Having experienced sustained growth over the decades, China has become an omnipresent economic force with wide-ranging implications for inflation. Its policies will have both short-term and long-term impacts on the global economy.

"The factors that drove inflation will be drastically different than last year, but we can expect a continued impact on the economy, which is reflected in this outlook," Roth added.

Wilmington Trust expects the 2023 recession to be short-lived, given the fact that it is already priced into the markets and the U.S. economy will likely rebound shortly after.

However, as we enter the first half of 2023, Wilmington Trust expects a slight upward movement in the unemployment rate, including limited nationwide net job losses. The sources of labor market tightness include:

1. Reduced labor participation due to a range of pandemic-related behavior, especially early retirement
2. Lower productivity attributable to a reluctance to work "harder," or more hours than is required, recently called out as "quiet quitting"
3. Low population growth, particularly from immigration, that traces to both the pandemic as well as domestic political forces in play before COVID-19 compounded the immigration headwinds.

The reduction in the labor force will likely reduce the U.S. economy's potential gross domestic product given the strong level of aggregate spending and recent Fed policy has directly impacted job losses in the housing sector, while overall market weakness has led to tech company losses. The firm anticipates both trends are likely to continue in the short term, and the overall labor pressure lasting into 2024 and 2025 at less intense levels.

The 2023 CMF contends that a significant future inflation driver will be created by the efforts to transition from a hydrocarbon-based energy economy to one powered by renewable sources. There will be three drivers of the energy transition: first, a reduction in capital expenditures (capex) and output by the petroleum industry; second, a surge in demand for vital, non-hydrocarbon commodities; and third, U.S. federal policy.

Wilmington Trust expects a decline in petroleum supply — prior to the development of a commensurate increase in renewables — to drive crude prices higher to a degree that has historically been shown to have an enduring, multiyear impact on overall inflation.

Additionally, non-energy commodity price increases have customarily been passed through to intermediate producers as well as to consumers. If this pattern holds true for key commodities within the green energy supply chain, they project that this will result in a second material source of inflation.

Lastly, public policy pushes prices of certain items higher through a "green premium," and the prospect of higher deficits to support renewable technologies is an inflation risk.

Wilmington Trust expects the Chinese economy to have a lasting impact on inflation.

Business in China has grown greatly over the decades to become an omnipresent economic force with wide-ranging implications for global inflation. In the short term, the country's zero-Covid policy and geopolitical tensions are key for global supply-side-driven inflation.

In the long term, Chinese policymakers' will be focusing on elevating its middle class and transitioning from a manufacturing-led to a service-led economy, to promote higher-paying service jobs. Even if corporations can extricate themselves from China's supply-chain grip, moving to other parts of the world will likely create redundancies within manufacturing and R&D, and may further add to costs and inflation.

To read the report in full visit https://www.wilmingtontrust.com/cmf2023

Wilmington Trust's Wealth Management offers a wide array of personal trust, planning, fiduciary, asset management, private banking, and family office services designed to help high-net-worth individuals and families grow, preserve, and transfer wealth. Wilmington Trust focuses on serving families with whom it can build long-term relationships, many of which span multiple generations.

Wilmington Trust also provides Corporate and Institutional Services for clients internationally.

Wilmington Trust has clients in all 50 states and numerous countries, with offices throughout the United States and internationally in London, Dublin, Paris, and Frankfurt. For more information, visit www.wilmingtontrust.com.

MEDIA CONTACT
Pat Fitzgibbons, Senior Public Relations Manager, Wilmington Trust, [email protected] 

Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation including, but not limited to, Manufacturers & Traders Trust Company (M&T Bank), Wilmington Trust Company (WTC) operating in Delaware only, Wilmington Trust, N.A. (WTNA), Wilmington Trust Investment Advisors, Inc. (WTIA), Wilmington Funds Management Corporation (WFMC), and Wilmington Trust Investment Management, LLC (WTIM). Such services include trustee, custodial, agency, investment management, and other services. International corporate and institutional services are offered through M&T Bank Corporation's international subsidiaries. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank, member FDIC. 

Wilmington Trust Investment Advisors, Inc's Capital Markets Forecast is provided for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a recommendation or determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the investor's objectives, financial situation, and particular needs. The investments or investment strategies discussed herein may not be suitable for every investor. The material is not designed or intended to provide legal, investment, or other professional advice since such advice always requires consideration of individual circumstances. If legal, investment, or other professional assistance is needed, the services of an attorney or other professional should be sought.

The forecasts presented herein constitute the informed judgments and opinions of Wilmington Trust about likely future capital market performance and are subject to change without notice. Forecasts are subject to a number of assumptions regarding future returns, volatility, and the interrelationship (correlation) of asset classes. Assumptions may vary by asset class. Actual events or results may differ from underlying estimates or assumptions, which are subject to various risks and uncertainties.

Some investment products may be available only to certain "qualified investors"—that is, investors who meet certain income and/or investable asset thresholds. Any offer will be made only in connection with the delivery of the appropriate offering documents, which are available to prequalified persons upon request.

The estimates contained in this presentation constitute Wilmington Trust's judgment as of the date of these materials and are subject to change without notice. The information in this presentation has been obtained or derived from sources believed to be reliable, but no representation is made as to its accuracy or completeness. No assurance can be given as to actual future market results or the results of Wilmington Trust's investment products and strategies.

Investment products are not insured by the FDIC or any other governmental agency, are not deposits of or other obligations of or guaranteed by Wilmington Trust, M&T, or any other bank or entity, and are subject to risks, including a possible loss of the principal amount invested.

Securities listed or mentioned are provided for illustrative purposes only and are not intended to be representative of current recommendations or holdings. It should not be assumed that these securities were or will be profitable.

Investing involves risk and you may incur a profit or a loss. Past performance cannot guarantee future results. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful.

Third-party trademarks and brands are the property of their respective owners. Third parties referenced herein are independent companies and are not affiliated with M&T Bank or Wilmington Trust. Listing them does not suggest a recommendation or endorsement by Wilmington Trust.

Private Banking is the marketing name for an offering of M&T Bank deposit and loan products and services. Private Bankers are M&T Bank employees. Loans, retail and business deposits, and other personal and business banking services and products are offered by M&T Bank, Equal Housing Lender Bank NMLS #381076 ©2022 M&T Bank. Member FDIC.

Investments: • Are NOT FDIC Insured • Have NO Bank Guarantee • May Lose Value

©2022 M&T Bank and its affiliates and subsidiaries. All rights reserved.

SOURCE Wilmington Trust