5 reasons why 2023 will be a tough year for global markets

From inflation to energy shortages and general instability, markets are expecting a rocky year.

Those that come with warnings are rarely popular. Cassandra did herself a disservice by telling her fellow Trojans to beware of the Greeks and their wooden horse. But, with financial markets facing unprecedented turbulence, it is important to take a close look at economic realities.

Analysts agree that the markets are facing serious headwinds. The International Monetary Fund has predicted that a third of the global economy will be in recession in 2023. Energy is in high demand and in short supply, prices are high and rising, and emerging economies are emerging from the pandemic in dire conditions. precarious.

There are five fundamental - and interrelated - issues that will cause problems for asset markets in 2023, with the understanding that in uncertain environments, there are no clear choices for investors. Every decision requires compromises.

Without dramatic changes to the geopolitical and economic landscape, fossil fuel shortages are expected to persist through next winter.

Russia's supply was cut by sanctions related to the war in Ukraine, while Europe's energy architecture suffered irreparable damage when an explosion destroyed part of the Nord Stream 1 gas pipeline. It's irreparable , as building new infrastructure takes time and money and ESG mandates make it difficult for energy companies to justify large-scale fossil fuel projects.

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Meanwhile, already strong demand will only pick up as China emerges from its COVID-19-related slowdown. Record growth in renewable energy and electric vehicles has helped. But there are limits. Renewable energy requires hard-to-find elements such as lithium, cobalt, chromium and aluminum. Nuclear would ease the pressure, but commissioning new plants takes years and it can be difficult to gain public support.

Supply chain shocks due to the pandemic and...