Despite finishing strong, 2022 wasn’t an exciting year for the United States. From the onset of the year, inflation was high and everyone feared the worst – recession. But generally, the last two years were a strong rebound compared to the events just before. Is 2023 going to pick up from last year’s performance?
While the IMF predicts that a recession is still unlikely, it observes that the GDP will slow down. As an investor or trader, are you prepared for what this year may present? Probably, it would be worthwhile to briefly look at the implications of economic performance, specifically what is GDP.
What’s in a slower GDP?
The Gross Domestic Product (GDP) of a country is the cumulative value of services and goods that the country’s economy produces. When this figure is adjusted for inflation (resulting in the so-called real GDP), the percentage change indicates the GDP growth rate. That’s why the GDP growth rate is one of the best indicators of the state of the economy. Commonly, this comparison is done from one year or quarter to the other.
Financial estimates indicate that the real GDP in America increased at a rate of 2.9% in the fourth quarter of 2022. That growth was largely due to higher consumer spending coupled with private inventory investment. In general, there was an increase of 2.1% in 2022.
Things are looking a little different in 2023, as reports from the IMF show. While global economic growth was relatively robust at 3.4% in 2022, it is expected to slow down to 2.9% this year before gathering momentum to 3.1% in 2024.
Recession in 2023? Mixed Signals for Now
Many people have been concerned that the global economy may slide into recession this year. Although the US economy experienced dwindling performance in the first two quarters of 2022, it did rebound in the third one, growing by 3.2%. When the economy continued on the expansion path in the fourth quarter, these concerns lessened.
China is reopening its borders, signaling a possible improvement in the global economy. With this reopening, there is bound to be an increase in domestic consumption and an overall positive impact on trans-border trade.
Still, there are reservations from several quarters that a recession is still possible in 2023. Increased inflation is a perpetual concern, regardless of any reduction in consumer prices. An inflationary problem could be triggered by the elevated demand for goods in China.
With these mixed signals, the wait-and-see game is on, especially considering that the Fed could still hike interest rates. The uncertainty of a global recession happening in 2023 continues.
Best Investments to Consider
When the economy is in a stagflationary state, it is advisable to invest in diversified portfolios. Some companies are known for having product lines with these characteristics. A company like Costco Wholesale Corp. boasts of consistent revenue and controlled costs, which are the results of having diversified operations.
Now is the time to consider investing across healthcare, electronics, energy, and other areas to diversify the risk. Considering that Costco enjoyed increasing annual earnings in the decade leading to 2022, it is easy to see why investing in such firms is the best bet for stock investors when the GDP appears to be slowing down.
Has there been a time when consumers overlooked their utility bills? Even when the economic times are at their direst, utility bills are always a priority. This makes utility sector stocks such a haven. Investing in a utility company is a good idea in 2023.
Also worth considering during this period are stocks in the healthcare sector. No matter the state of the economy, firms in this segment maintain their pricing power thanks to their provision of essential products and services.
The IMF has been categorical that a bigger proportion of the global economy will experience a recession-like situation in 2023. However, it is still unclear whether a bigger decline or recovery will follow.
As for the US economy, 2022 may have ended on a high, but such growth is far from assured in 2023. Investors had better have their investment strategies right because the economic situation will only become clearer as the year progresses and data is released.