This month:

• In their latest annual report, the World Bank, which lends money to poorer countries for development projects, said it had slashed its forecast for global growth this year by nearly half, to just 1.7%, from its previous projection of 3%. If that forecast proves accurate, it would be the third weakest annual expansion in three decades, behind only the deep recessions that resulted from the 2008 global financial crisis and the coronavirus pandemic in 2020.
• Continuing a key theme, most forward-looking economic indicators point to a major economic downturn in the developed world during 2023. Having said that, unemployment still remains completely inconsistent with a recession scenario. Australian, U.S. and European unemployment figures are still at or near record lows.
• The S&P 500 had a solid December quarter, even though December was a poor month for equities. The S&P 500 rose by 7.08%, while the Australian S&P 200 rose by an impressive 8.72%. In Australia, Value and Value-Weighted were the best performing styles for the quarter, while globally, Equal Weight and Value were the best performers. Growth was the worst performing style, both domestically and globally.
• Within Fixed income markets, while government bonds generally produced small positive returns for the quarter, corporate bonds performed well, with high yield returning a very pleasing 6.0% and investment grade returning a solid 2.7%.
• As most global economic indicators remain negative for 2023, credit is likely to come under greater pressure. As far as composite Australian bond funds go, now that the average yield to maturity is around 3.7% versus below 1.5% a year earlier, these are more attractive than a year ago, especially since the RBA has reduced its rate of interest rate increases and any further expected rises are basically already factored into bond markets.

Read the full Monthly Economic Wrap prepared by IOOF Research here.