Aditya Birla Sun Life AMC Limited

Is Recession Coming in 2023? Analysing the Risks & Impact

Dec 01, 2022
5 min
4 Rating

Summary

Many experts have predicted a recession in 2023. But how accurate are these predictions? How should investors prepare for it? Read this post to find out.

Content

The global economy took a massive blow during the COVID-19 pandemic. And while recovery efforts were underway, the Russia-Ukraine conflict aggravated the crisis further. As these events are expected to have a lasting impact on the global economy, many experts believe there will be a recession in 2023.

If these predictions are true, what will be the impact of recession? What would the recession mean for investors? Let’s take a look-

2023 Recession Predictions

As the global economic and financial systems are so complex, it is very challenging to predict the future accurately. However, while one cannot deny that the global economy is suffering and might continue to do so, at least for some time, most economists and government agencies are fairly optimistic.

  • Report from the US NBER Suggests Steady Growth

    According to reports by the NBER, the official scorekeeper of the US recession, factors like industrial production, real spending, employment, and real income minus government transfers, are exhibiting strong growth trends since their April 2020 lows.

    And with the US having the largest economy in the world, its economy has a direct impact on other countries. But while most reports suggest we might avoid recession impact altogether, some offer a more alarming picture.

  • Fannie Mae Expects Inflation to Start from 1st Quarter of 2023

    Economists of the US Federal National Mortgage Association, popularly known as Fannie Mae, are expecting a recession in the first quarter of 2023. They expect the economic growth in the US to fall to 0.1% in 2022 and reduce further to -0.4% in 2023.

What About the Economic Trends in India?

According to the latest October 2022 report by the World Bank, the Indian economy grew at 8.7% in 2021. In the fiscal year 2022-23, it is expected to grow at 6.5%. If the international financial institution is to be believed, as compared to other South Asian countries, the Indian economy has done exceedingly well in recovering from the sharp contraction during the pandemic.

While the prediction is 1% lower than the World Bank's June 2022 prediction, the outlook is still highly optimistic. As India does not have significant external debt and the RBI has prudently adjusted the monetary policies in the last few quarters, it is better equipped to navigate through the challenges if there is a recession in 2023.

What Should Investors Do If There is a Recession in 2023?

As the impact of recession on business and the economy is difficult to predict, the best we can do is prepare ourselves for the worst while not panicking. If you’re an investor, you can take various measures to protect your savings and generate investment returns.

Here are some points you should keep in mind before investing during a recession-

  • Like other economic cycles, the recession also offers various investment opportunities if you know where to find them.

  • Larger companies generally outperform small and mid-cap companies in periods of no or low economic growth as they generally have extensive income streams, streamlined supply chains, and a steady customer base.

  • Smaller companies, on the other hand, could struggle with their expansion plans, supply chains, and customer bases when economic growth is low and income streams are fewer.

  • Hence, equity investors could have a diversified investment strategy focusing more on larger-cap companies.

  • If you prefer the mutual fund route, you can invest in the top-performing large-cap mutual funds to generate returns.

  • However, as the impact of inflation is difficult to predict, investors are advised to invest as per their risk appetite.

  • Consultation with a professional investment advisor is also highly recommended, especially if you’ve recently started investing.

Preparing for Recession in 2023

As the response from economists and global organisations regarding whether there will be a recession in 2023 and the effects of recession on the economy is mixed, it’d be wise for investors to keep themselves prepared for the event. Rather than responding to it after it has begun, a proactive investment strategy could help investors make the most of the potential opportunities.

Note the points listed above and consult an investment advisor to take the necessary measures and ensure recession does not significantly impact your investment portfolio.

You may also read – Pro investing

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.