Global Economic Forecast
Retirement fund owners will be happy to see 2022 leave. Unfortunately, 2023 isn’t looking much brighter. The world economy is facing its worst year in decades. Inflation is still at record highs and a global recession is encroaching. Yet, with proper planning, retirement funds can not only survive, but thrive.
Europe and the United States are both predicted to enter recession. The global economy is forecasted to grow only 2.4% in 2023. Excluding crisis years of 2009 and 2020, that is the lowest since 1993.1
Historically, the Federal Reserve rescues the economy from recession by making money more available. They also add trillions of dollars in assets to its balance sheet. Now, the Fed is causing the recession to tame inflation. They are aggressively hiking interest rates and unloading all the assets they acquired. This recession is predicted to run long and deep since the Fed won’t be able to help.
Mark Zandi is the chief economist at Moody’s Analytics. He said, “That invariably happens — the classic overheating scenario that leads to a recession. We’ve seen this story before. When inflation picks up and the Fed responds by pushing up interest rates, the economy ultimately caves under the weight of higher interest rates.”2
Unlike almost every other economist and CEO, the Fed does not forecast a recession. Though they do say growth is going to stall and unemployment is going to rise. The strong labor market is starting to weaken as waves of layoffs begin. Higher interest rates are already hurting the housing market. Home sales are in their tenth month of decline.
The Fed is expected to relent on interest rate hikes eventually. But the high rates won’t be coming down anytime soon. Interest rates will be kept high to control inflation. The recession could run at least through the end of 2024.
The Future of Retirement Funds
To say 2022 was not kind to retirement funds is an understatement. Dropping stocks and bonds wiped out more than $3 trillion in value. Growth funds were especially hard hit. The T. Rowe Price Blue Chip Growth Fund plummeted more than 40%. The Vanguard 500 Index Fund fell almost 20%. Target date funds – which become more conservative as the retirement date nears – dropped an average of 20%. What did survive was eaten away by skyrocketing inflation.3
Financial advisors are worried by the large increase in hardship withdrawals from funds. These withdrawals can’t be paid back, are subject to penalties and are taxed by the IRS.
However, 2022 saw many investors transferring 401(k) money into more conservative investments such as stable value funds and precious metals.
Goldman Sachs says commodities will be the best performing assets in 2023. The bank expects returns of more than 40%. Their GSCI Total Return Index measures commodity price movements. It gained 24% this year. Commodity focused hedge funds have increased their value by 50%. They’ve hit $20 billion.4
Oil and metals prices are being driven by scarcity. Goldman Sachs says we are entering a multi-year commodities supercycle. The high commodity prices seen in 2022 weren’t enough to fund new investment in the industry. As a result, there are shortages in the face of growing demand.
Gold prices could surge to $4,000 an ounce in 2023 according to the chief investment officer of Swiss Asia Capital. He explained that many economies could face “a little bit of a recession” in the first quarter. This would lead to many central banks slowing their pace of interest rate hikes and make gold instantly more attractive. Investors would look to gold with inflation remaining high in many parts of the world. “Gold is a very good inflation hedge, a great catch during stagflation and a great add onto a portfolio.”5
That sentiment was shared by Nikhil Kamath, co-founder of India’s largest brokerage Zerodha. He said investors should allocate 10% to 20% of their portfolio to gold, adding that it’s a “relevant strategy” going into 2023. This past year was especially hard for those with an eye on retirement. Few expected the challenges faced in 2022. But investors can see the road ahead and should prepare. Our Gold IRA can protect your wealth in the new year and potentially grow it to new heights. Contact us today to learn more.