Rising inflation, especially in the U.S. and Europe, is putting financial conditions under increasing pressure. Economists now foresee a tough global economic year ahead.
Peter Schiff predicted that the U.S. dollar would experience its worst year in 2023. He also warned that the country's inflation problem would get worse.
"The U.S. dollar index may have had a strong year, but it ended the year on a six-month low, down 10 percent from its November high," Schiff said. "This weakness will likely continue in 2023, with the dollar having one of its worst years ever. If I'm right the inflation problem is about to get much worse."
Jeremy Siegel, a finance professor at Wharton, shared his views on the economy on CNBC last week. But, according to Schiff, the professor was wrong when he said that the falling prices of real estate would end the threat of inflation. The CEO of Euro Pacific Capital Inc. also said that rising consumer prices, such as those related to homeownership, insurance, taxes and mortgage rates, would continue.
Schiff also predicted that the stock market's worst-performing sectors in 2022 will likely repeat in 2023. In October, he warned that the U.S. might be unable to pay its debts, and he predicted that the country would experience a financial crisis and a recession. The economist also warned that the country's debt level has increased significantly since 2008 and that it would lead to a bigger crisis once the defaults begin.
Tough global economy ahead
The International Monetary Fund (IMF) said the global economy would face a tough time in 2023 due to the various factors that have affected the economies of China, the U.S. and the European Union. The organization's chief, Kristalina Georgieva, said that around one-third of the world's economy would be in recession.
The IMF chief said the U.S. is expected to avoid recession. However, the country's labor market is still strong, which could cause the Fed to keep raising interest rates. As for the EU, Georgieva predicted half of the continent would be in recession next season.
Regarding China, Georgieva described the country's economy to continue slowing down due to its zero Covid policy. She also expected that, for the first time in over 40 years, China's growth might be below the global expansion in 2022.
China's economy is expected to experience a tough year in 2023. This will translate into negative trends across the world. Moreover, emerging markets are expected to be severely hit by the rising interest rates and the appreciation of the U.S. dollar. This would be a disaster for countries with high levels of these issues.
"My message [is] don't think that we are going to go back to pre-Covid predictability. More uncertainty, more overlap of crises wait for us … We have to buckle up and act in that more agile, precautionary manner," Georgieva concluded her outlook for the upcoming global economy.
More global economic outlook for 2023
Inflation is expected to remain high next year, with former UK Independence Party leader and politician Nigel Farage calling it a "disease of money caused by the government." He also noted that the global economy is going through similar scenarios as it did during the 1980s and 1990s.
Although the lower gas and oil prices by next spring might help ease inflation, it is not enough to bring it under control. Also, interest rates are expected to stay high.
Both investors and consumers are expected to continue feeling the effects of the rising cost of living. The U.S. dollar is also expected to continue its upward trend. However, it is unclear if other major currencies will follow suit.
Schiff is more bearish than the former UK Independence Party leader, claiming that the U.S. government will be unable to hide the increases in consumer prices. The global economy is also expected to continue reducing its dependence on the U.S. dollar, which could lead to the country having less influence in international affairs.