A Recession In The UK Looks "Almost Impossible To Avoid" In 2023, According To This Report

FOREX.com, one of the world’s leading Forex brokers, has released the 2023 Indices Outlook report. The report analyzes the historical performance and macroeconomic conditions affecting the world’s most popular indices and provides predictions on where their prices may end up in 2023. 

The analysis begins with the Euro Stoxx 50 Index — the European equivalent to the S&P500 that tracks 50 of the best companies across 11 European countries. The Euro Stoxx 50 Index had shown resilience against 2022’s bear market, dropping a relatively mild 12% year-on-year (YoY) compared to the S&P 500’s 20% YoY drop, but actions from the European Central Bank may adversely impact the index in 2023. 

Chart of EU Stocks 50. Source: TradingView.

“The ECB [European Central Bank] has tightened rates by 210 basis points to 2.5% so far this cycle to rein in inflation, raising some concerns of a central-bank-induced recession in the first quarter of 2023,” warns Fiona Cincotta, Senior Market Analyst at FOREX.com. While Cincotta attests that the “second half of the year could see a cautious rebound thanks to the plethora of value and cyclical shares in the [Euro Stoxx 50] index,” the outlook is not as bright for the United Kingdom’s general economy.

“A recession in the UK looks almost impossible to avoid,” declares Cincotta. “Inflation is expected to have peaked at 11.1% in Q4 2022. Even so, cooling inflation is likely to be a slow process, and negative growth will help accelerate the cooldown in prices.” 

Chart of UK Stocks 100. Source: TradingView.

Despite the negative outlook for the U.K.’s economy, the FTSE 100 Index, an index comprising 100 companies listed on the London Stock Exchange, may be able to withstand the drop. Cincotta posits that around 75% of FTSE’s constituents are earning abroad, and the index has high exposure to sectors that historically perform well in challenging economic conditions. These features provide FTSE with some protection from the impacts of the U.K.’s weakening economy. 

Outlooks For U.S. And Asian Indices

Included in the 2023 Indices Outlook report is an in-depth analysis of America’s biggest market proxies, including the Nasdaq 100, the S&P500 and the Dow Jones Industrial Average indices. 

Also scrutinized by FOREX.com’s market analyst Fawad Razaqzada are China’s FTSE A50 Index, Australia’s S&P/ASX 200 Index and Japan’s Nikkei 225 Index. A mix of technical and fundamental analysis forms the background for Razaqzada’s investigation into each of these market proxies. 

Chart of the S&P500. Source: TradingView.

Speaking of the S&P500, for example, Razaqzada says: “There was still no resolution in the existing pattern on the S&P500 by mid-December, as both the support and resistance trend lines held following the last two major events of the year: the last CPI report and the FOMC meeting of 2022. This meant that the next directional move could potentially start ahead of the start of 2023. As hinted above, we reckon the risks are skewed to the downside again from a macro viewpoint.” 

The 2023 Indices Outlook report concludes with projections for all the world’s major stock indices. Click here to access the full report and find out what the future may hold for the world’s largest economies.

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